RBI panel proposes framework for state guarantees

The Reserve Bank of India’s working group on state government guarantees has proposed that the word ‘guarantee’ should include all instruments, which create an obligation, contingent or otherwise, on the part of the state government.

“The purpose for which Government guarantees are issued should be clearly defined. State governments may consider fixing a ceiling for incremental guarantees issued during a year at 5 per cent of Revenue Receipts or 0.5 per cent of Gross State Domestic Product, whichever is less,” the RBI panel in its report.

“State governments may consider charging a minimum guarantee fee for guarantees extended and additional risk premium may be charged based on the risk category and the tenor of the underlying loan,” the panel said.