Addressing a press conference in Civil Secretariat, here this afternoon Rather said the facts and figures mentioned clearly indicates that the cash management with RBI is in the overall benefit of the state and its people.
Terming the new cash management agreement with RBI as a supplementary agreement, necessitated to have high degree of financial prudence, Rather said the new arrangement is a major structural reform measure which is in the overall interest and benefit of the people, depositors, J&K Bank and the government.
He said the Over Draft(OD) facility with J&K Bank was meant to be used to meet a temporary miss-match between the availability of cash (receipts) and expenditures for only few day but due to its continued non-liquidation, the OD facility had become a permanent structural liability deficit in the State finances adding that the OD limit of Rs. 1700 crore had now exceeded to all time high of Rs. 2300 crore 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 times passed strictures against the bank for exceeding the over draft limits. “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 OD through J&K Bank was not governed by Fiscal Responsibility Legislation (FRL), the successive Government continued to get OD 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 had also to pay a whooping interest of Rs. 235 crore over the overdraft from J&K Bank, the Minister said. The OD facility was gradually issued for higher and higher limits and for considerably long periods as it neither required approval of the legislature nor the cabinet.
Rather said under the cash management agreement with RBI, the interest rate on Rs. 315 crore Ways and Means Advance(WMA) would be only 6% against an interest rate of 10% on an over draft of Rs. 950 crore from the J&K Bank. Similarly, under the new cash arrangement, the Government has to pay only 8% interest rate above Rs. 315 crore WAP and 11% for Rs. 630 crore whereas J&K Bank was charging 10% rate of interest for OD of Rs. 950 to Rs. 1500 crore and 17.25% for OD above Rs. 2000 crore.
Elaborating further, Rather said that the State Government had to pay an interest of Rs. 202.40 crore to J&K Bank on over draft in 2006-07, Rs. 220.97 crore in 2007-08, Rs. 218.86 crore in 2008-09 and Rs. 235.17 crore in 2009-10 and Rs. 176.10 crore up to ending December 2010-2011. He said with the new cash management, the State government would be in a position to save upto Rs. 3000 crore upto 2015 whereas J&K Bank would get Rs.9000 crore which could be utilized by it for other economic activities and priority sectors including agriculture credit which, at present, is only 11% against the RBI bench mark of 18% agriculture credit. “This way the new cash management system is beneficial for all the three Stake holders viz State government, J&K Bank and the people of the State, Rather”, said adding that the new fiscal reform is 100% in favour of J&K Bank.
Rather said on the request of the State Government, the 13th Finance Commission has agreed to provide Rs. 1000 crore as grant and as one time exception, to help the State to liquidate the burgeoning over draft of Rs. 2300 crore taken from Jammu and Kashmir Bank whereas the remaining Rs. 1300 crore have been permitted to be arranged through market borrowing adding that the State Government shall have to pay no interest on this amount. He said the Jammu and Kashmir Bank would continue to be the Bankers to the State Government, through agency charges from the government as also interest on the Ways and Means Advances extended to the State under RBI norms.
Economic Advisor to Govt, Jaleel Ahmad Khan, Commissioner Secretary Finance, Sudanshu Panday, Executive Director JK Bank, A K Mehta, Director Information , Kh. Farooq Renzushah and Director Finance, were also present.
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