RBI changes stance, says it ‘administratively convenient.’

The RBI is the one who lends loans to the centre and the states if there is any necessity for the same. Earlier, the RBI announced that the states could borrow loans from it directly, however now it changes its stance.

RBI states that if the centre borrows loans, then it is easier for administrative purposes.


RBI also said that all the states could take loans at fixed and equal interest rates. However, the financial profiles of states vary from each other. Hence, it could be a little unfair to some states to charge high interest if they deserve a low one.

There is a severe GST shortfall in the country, thus to bridge it up the RBI wants the centre to borrow money rather than states. The Central government borrows loans at a lesser interest rate than the states. Thus, it becomes easier for the RBI to administer the loans. In fact, the RBI has also promised that they shall manage the borrowings of the Central in the best way.

However, an official from the Department of Economic Affairs has debated on the fact that why the RBI has pushed the centre to borrow loans instead of the states.

There have to be brief altercations if there are needed on the norms as the states are in urgent need of funds. Amongst the amount that was supposed to be given to the states, only 2000 crore of it has been disbursed. There is still 1.5 lakh crore to be disbursed.

The decision is taking quite a long time because every state has its own financial profiles. The centre has already decided to cut out its Option 1 from the schemes. Other than the administrative challenges, there are legal challenges also that the state could face.

Along with that, the differential rates of the state have grown concerning too. In the market, Maharashtra and Sikkim have different financial profiles, and thus their interest rates vary on that basis. However, when you see every state through the same interest window, then it becomes difficult to cope up with it.

The centre has been stooping down from its initial decision, where they had promised individual loans to the states with good overdraft facilities. The stance the RBI has been taking now is crucial and tedious for the states and the centre. However, the decisions need to be quick, because of the current health, economic and environmental conditions. Even if the state borrows loans from the RBI, it would not be depicted in the deficits of the centre as the borrowings shall be considered as capital receipts.

Read: RBI makes priority sector lending more comprehensive



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