RBI Governor Asks States, UTs To Exercise Caution In Borrowing Decisions

Reserve Bank of India (RBI) Governor Sanjay Malhotra has advised state governments to pay close attention to their borrowing decisions and the way they use public funds, with an emphasis on keeping state finances on a sound footing over the long term. At the 36th Conference of State Finance Secretaries, Malhotra also urged the states to make greater use of banking coordination forums and digital systems for lending and government payments.

Conference Reviews State Borrowing Plans

Finance secretaries from 27 states and three Union Territories (UTs) attended the conference, along with senior officials from the Union Ministry of Finance, the Controller General of Accounts, and the Comptroller and Auditor General of India, according to an RBI release.

The agenda included market borrowings by states, short-term financial accommodation provided by the RBI, and the adoption of a benchmark issuance strategy. 

States depend on market borrowings to finance expenditure when their available revenues are insufficient to meet their needs. Borrowing decisions also determine future interest payments and repayment commitments, making debt planning an important part of budget management.

The RBI provides short-term financial accommodation to help states manage temporary mismatches between their cash receipts and payments. The conference also examined how states could approach their borrowing programmes through a benchmark issuance strategy.

Malhotra also reiterated the need to maintain spending quality and manage cash balances efficiently. He said state governments must use the State Level Bankers’ Committee (SLBC) forum to address issues involving banks and state-level development priorities.

ULI And Digital Rupee For Government Payments

Malhotra has also asked states to adopt the Unified Lending Interface (ULI), a digital platform designed to make the lending process more efficient by helping lenders access relevant information for credit assessments. 

The purpose of this initiative is to address difficulties in obtaining borrower information from different sources. Wider adoption could help simplify loan processing and improve the flow of credit to eligible borrowers.

 Malhotra also urged state governments to use Programmable Central Bank Digital Currency (P-CBDC) for direct benefit transfers (DBT). Programmable CBDC allows conditions to be built into digital currency transactions. For state governments, the proposed use in benefit transfers could allow payments to be linked to specific purposes or conditions set under a scheme. DBT enables governments to transfer benefits directly to recipients’ accounts. The RBI’s call places the use of programmable digital currency among the options for carrying out such payments.