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RBI: Fiscal Deficit of States Soars to Rs 4.93 trillion in FY16

According to ‘Handbook of Statistics on States 2016-17‘, the gross fiscal deficits of all the states have soared to Rs 4,93,360 crore in fiscal 2016 from Rs 18,790 crore in FY1991. This is the second edition of RBI’s statistical publication.

Salient Highlights

‘Handbook of Statistics on States 2016-17 follows a ‘one-indicator-one table’ approach. It covers all sub-national statistics on socio- demographics, state domestic product, agriculture, industry, infrastructure, banking and other fiscal indicators across the states during the period 1950-51 to 2016-17.

The handbook also provides data on the state-wise availability of power, per capita availability of power, installed capacity of power, and power requirement, the length of national highways, roads and state highways, and railheads.

Uttar Pradesh had a fiscal deficit of Rs 3,070 crore in FY91, which has soared to Rs 64,320 crore in FY16. It is projected to improve to Rs 49,960 crore in FY17.

Rajasthan had a fiscal deficit of Rs 540 crore in FY91, which has soared to Rs 67,350 crore in FY16. However, the gross fiscal deficit is projected to decline to Rs 40,530 crore in FY17.

Maharashtra has a fiscal deficit of Rs 37,950 crore in FY16 which is projected to soar to Rs 35,030 crore in FY17.

Gujarat which has seen rapid industrialisation in the period of data analysis has got its fiscal deficit increased from Rs 1,800 crore in FY91 to Rs 22,170 crore in FY16 and the deficit is projected to further deteriorate in FY17 to Rs 24,610 crore. In fact from FY01, Gujarat has not shown improvement in its macro numbers even for a single year.
Andhra Pradesh has a deficit of Rs 17,000 crore in FY16 which is set to increase to  Rs 20,500 crore in FY17. Tamil Nadu is also projected to have a higher deficit at Rs 40,530 crore in FY17. Karnataka is also estimated to post higher deficit in FY17 at Rs 25,660 crore.

Bihar which has a fiscal deficit of Rs 28,510 crore in FY16 is slated to improve its finances with the fiscal deficit of Rs 16,010 crore in FY17. Similarly, West Bengal is also slated to improve its fiscal deficit to Rs 19,360 crore in FY17 .

Fiscal deficit is the difference between total expenditure and total revenue receipts including recoveries of loans and other receipts.

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Union Cabinet approves Interest Subvention on Short-Term Crop Loan to Farmers

The Union cabinet has approved the Interest Subvention Scheme (ISS) for farmers for the year 2017-18. The Government has allocated Rs. 20,339 crore for this scheme.

Salient Highlights

The objective of the scheme is to make available agricultural credit for Short Term crop loans at an affordable rate. The scheme is expected to boost agricultural productivity and production in the country.

Under this scheme, farmers will be given a short term crop loan up to Rs. 3 lakh payable within one year at an interest rate of 4% per annum.

The scheme will be continued for 1 year and will be implemented by NABARD and RBI. 

The interest subvention will be provided to Public Sector Banks (PSBs), Private Sector Banks, Cooperative Banks and Regional Rural Banks (RRBs) and to NABARD for refinancing to RRBs and Cooperative Banks.

Interest subvention of 5% per annum will be provided to those farmers who pay the short term crop loan in time. Farmers will have to effectively pay only 4% as interest. For farmers who do not pay crop loan in time the interest subvention of only 2% will be applicable as against 5% available above.

This institutional credit is expected to demotivate farmers from taking loans from non-institutional sources of credit at high rates of interest.

Background

Interest Subvention Scheme (ISS) has been running since 2006-07. Under this scheme, crop loans are offered at 7% rate of interest for loans up to Rs.3 lakh. Further subvention of 3% will be provided to farmers who prompt repay the loans within a period of one year from the date of advance.

The scheme also offers post-harvest loans for storage in accredited warehouses against Negotiable Warehouse Receipts (NWRs) for a period of 6 months to check distress sale.

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RBI identifies 12 Bank Accounts accounting 25% of NPAs to initiate Bankruptcy Proceedings

RBI’s Internal Advisory Committee (IAC) has identified 12 bank accounts constituting nearly 25% of the gross bad loans for immediate referral and resolution under the bankruptcy law. Each of the 12 identified accounts was having more than 5,000 crore rupees of outstanding loans, of which at least 60% was classified as non-performing by banks as of March 31, 2016. The RBI, however, has not disclosed the names of the accounts.

Salient Highlights

RBI’s internal advisory committee (IAC) mainly comprises of its independent board members. Based upon the recommendations of the IAC, the RBI will issue directions to the banks to initiate insolvency proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC). These cases will be accorded priority by the National Company Law Tribunal (NCLT). The NCLT is the arbitration authority for cases filed under IBC.

For those loan accounts which do not meet the criterion recommended by the IAC, the concerned banks should finalise a resolution plan within six months. The details of the resolution framework for these other non-performing accounts will be released soon by the central bank.

Background

Indian banks have an estimated Rs 10 trillion as stressed assets. Of this, gross bad loans amounts close to Rs 7.7 trillion and the rest constitutes the restructured loans.

In May, the Union Cabinet had cleared an ordinance that amended the Banking Regulation Act and gave more powers to Reserve Bank of India to deal with non-performing assets (NPAs) in the banking sector. The Amendments has empowered the RBI to act against loan defaulters and defaulting companies under the bankruptcy code. These amendments would pave for faster resolution of the NPAs as the bankruptcy code provides for a time-bound winding up of companies and recovery of secured loans.

The assets of the banks which don’t perform are called Non-Performing Assets (NPA) or bad loans. If customers don’t pay either interest or part of principal or both, the loan turns into a bad loan. According to RBI, loans on which interest or instalment of principal remains overdue for a period of more than 90 days from the end of a particular quarter will be classified as a Non-performing Asset.

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