Arrangement with RBI in the Interest of All: J&K Govt

Arrangement with RBI in the Interest of All: J&K Govt
The Jammu & Kashmir government today defended the new cash management arrangement with the RBI -- which restricts J&K Bank from extending overdraft facility to Jammu & Kashmir directly -- saying it is in the overall interest and benefit of the state, people and the lender.

"The new cash management agreement with RBI as a supplementary agreement, necessitated to check continued financial indiscipline. The new arrangement is a major structural reform measure which is in the overall interest and benefit of the government people and the J&K Bank," Minister for Finance and Ladakh Affairs A B Rahim Rather said while addressing a press conference in Civil Secretariat today.

Jammu & Kashmir enjoyed a special provision under which it could receive overdraft facility directly from J&K Bank instead of the way and means advances from the Reserve Bank of India (RBI).

Overdraft is a facility extended by banks to obtain funds in excess than balance available from time to time.

Rather said the overdraft facility with J&K Bank was meant for meeting a temporary miss-match between revenue and expenditures for only a few days. But, he added, due to continued financial constraints, the overdraft facility had become a permanent structural liability deficit in the state finances.

He added that the overdraft limit of Rs 1,700 crore had exceeded to Rs 2,300 crore, an all-time high, during last fiscal, in violation of the RBI guidelines.

This negative tendency, if not checked forthwith, could have proved very disastrous for J&K Bank as RBI have many a time passed strictures against the bank for exceeding the overdraft limits, he said.

"Reputation and credibility of J&K Bank was continuously at risk and the trust of investors would have fallen at any movement resulting into catastrophe for J&K Bank," Rather added.

Rather said as the arrangement of overdraft through J&K Bank was not governed by Fiscal Responsibility Legislation , the successive government continued to get the facility beyond the limits without liquidation, with the result the OD which was only Rs 800 crore in 2002, when PDP took over government it continued to swelling up to Rs 23000 crore by ending March 2009, when the present dispensation came to power again.

"Moreover, the state government also had to pay a whopping interest of Rs 235 crore over the overdraft from J&K Bank, the Minister said.

Rather said under the new agreement with RBI, the interest rate on Rs 315 crore Ways and Means Advances (WMA) would be only 6 per cent against an interest rate of 10 per cent on an overdraft of Rs 950 crore from the J&K Bank.

Similarly, the government has to pay only 8 per cent interest rate above Rs 315 crore WMA and 11 per cent for Rs 630 crore whereas J&K Bank was charging 10 per cent rate of interest for overdraft facility of Rs 950 to Rs 1,500 crore and 17.25 per cent for OD above Rs 2,000 crore, he said.
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