Jammu, Jan 24 (PTI) The Jammu & Kashmir government todaydefended the new cash management arrangement with the RBI --which restricts J&K Bank from extending overdraft facility toJammu & Kashmir directly -- saying it is in the overallinterest and benefit of the state, people and the lender.
"The new cash management agreement with RBI as asupplementary agreement, necessitated to check continuedfinancial indiscipline. The new arrangement is a majorstructural reform measure which is in the overall interest andbenefit of the government people and the J&K Bank," Ministerfor Finance and Ladakh Affairs A B Rahim Rather said whileaddressing a press conference in Civil Secretariat today.
Jammu & Kashmir enjoyed a special provision under whichit could receive overdraft facility directly from J&K Bankinstead of the way and means advancecs from the Reserve Bankof India (RBI).
Overdraft is a facility extended by banks to obtain fundsin excess than balance available from time to time.
Rather said the overdraft facility with J&K Bank wasmeant for meeting a temporary miss-match between revenue andexpenditures for only a few days. But, he added, due tocontinued financial constraints, the overdraft facility hadbecome a permanent structural liability deficit in the statefinances.
He added that the overdraft limit of Rs 1,700 crore hadexceeded to Rs 2,300 crore, an all-time high, during lastfiscal, in violation of the RBI guidelines.
This negative tendency, if not checked forthwith, couldhave proved very disastrous for J&K Bank as RBI have many atime passed strictures against the bank for exceeding theoverdraft limits, he said.
"Reputation and credibility of J&K Bank was continuouslyat risk and the trust of investors would have fallen at anymovement resulting into catastrophe for J&K Bank," Ratheradded.
Rather said as the arrangement of overdraft through J&KBank was not governed by Fiscal Responsibility Legislation ,the successive government continued to get the facility beyondthe limits without liquidation, with the result the OD whichwas only Rs 800 crore in 2002, when PDP took over governmentit continued to swelling up to Rs 23000 crore by ending March2009, when the present dispensation came to power again.
"Moreover, the state government also had to pay awhopping interest of Rs 235 crore over the overdraft from J&KBank, the Minister said.
Rather said under the new agreement with RBI, theinterest rate on Rs 315 crore Ways and Means Advances (WMA)would be only 6 per cent against an interest rate of 10 percent on an overdraft of Rs 950 crore from the J&K Bank.
Similarly, the government has to pay only 8 per centinterest rate above Rs 315 crore WMA and 11 per cent for Rs630 crore whereas J&K Bank was charging 10 per cent rate ofinterest for overdraft facility of Rs 950 to Rs 1,500 croreand 17.25 per cent for OD above Rs 2,000 crore, he said. PTIAB AKG ns