The Telegraph
Since 1st March, 1999
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Panel wants project loans sans state guarantees

Mumbai, March 13: An expert group has said the requirement of getting state government guarantees to secure loans from central financing agencies should be removed.

In its report submitted to the Reserve Bank, a committee of state finance secretaries urged lending institution to assess commercial viability of projects more intensively instead of relying on state sureties.

The recommendation comes against the backdrop of a welter of guarantees that cash-strapped state governments write in favour of all-India financial institutions, such as National Housing Bank (NHB), Housing and Urban Development Corporation (Hudco), National Co-operative Development Corporation (NCDC), Life Insurance Corporation (LIC) and others.

The panel feels guarantees to power, industry, infrastructure and welfare plans should be monitored, and states should assess the fiscal risks involved.

Two methods of assessing fiscal risks of guarantees and setting aside money have been suggested. One of them is to include the full value in the budget, especially in cases were sureties are in the nature of direct liabilities; the risk of this should be assessed at 100 per cent (equal to debt) and should be reported separately. For other guarantees, the group suggested classification of the projects/ activities as high risk, medium risk, low risk and very low risk and assigning risk weights.

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