Centre Warned National Banks On Loans To AP?

According to highly placed sources from New Delhi, the Union Finance ministry reportedly advised all the national banks to be cautious while lending loans to Andhra Pradesh. With latest instructions from the union ministry, the Andhra Pradesh State Development Corporation (APSDC) and other corporations that were set up in the last couple of years by the YCP government, are finding it difficult to take fresh loans from banks.

APSDC and other corporations have sealed many deals including mortgaging of properties and registration, with banks for loans but now banks are not reportedly coming forward to sanction loans despite getting guarantee from the state government.

In order to clear the myths surrounding the repayment of loans, the AP government proposed to levy CESS and taxes on taxpayers i.e, people. But the banks are sceptical about the AP government’s proposal.

From India’s top bank SBI, AP was supposed to get Rs 1800 crore but the bank is said to have taken a second thought. It’s the same with other corporations too. Through beverages and other corporations, the AP planned to borrow thousands of crores and hurdles have erupted for the same with directions from the finance ministry.

Apparently the Union Finance ministry reportedly informed the banks regarding loans to AP before January but the issue made it to the limelight quite late. Moreover many corporations in AP are following APSDC’s method to seek loans and there are huge doubts are the legality of this process of taking loans.

The YCP government established APSDC for its financial requirements having complete knowledge of AP’s financial affairs. AP government made an agreement with SBI CAP and assured guarantee. For the financial year 2020-2021, the banks consortium signed a MoU with AP government and here are some details of the banks and the loans that were supposed to be sanctioned to the state.

State Bank of India – Rs 6000 crore

Union Bank of India – Rs 5000 crore

Punjab National Bank – Rs 5000 crore

Bank of Baroda – Rs 3500 crore

Indian Bank – Rs 2500 crore

Indian Overseas Bank – Rs 1250 crore

Bank of Maharashtra – Rs 1000 crore

However, the banks were not completely satisfied with the guarantee they received from the AP government. To convince the banks, the AP government put forward additional retail excise cess and with revenues from the liquor, the state government proposed to pay the loan amount every month. Besides this, Rs 2954 crore worth valuable assets in Vizag that belongs to the state government were mortgaged.

But the Economic experts were apprehensive with AP government’s proposals of taking loans based on the revenues that it generates in future. Regarding the same issue, YCP rebel Raghu Ramakrishna Raju complained against the YCP government to PM Modi. The Prime Minister has asked the finance ministry to study this case and sort an explanation from the AP government.

Learning about PM Modi and the Finance ministry’s intervention, CM Jagan issued a clarification to the PM himself. Before meeting PM Modi, Jagan took the suggestions of Constitutional experts and retired Supreme Court Judge Deepak Mishra informed Jagan that the manner in which APSDC is seeking loans has legality. Jagan was informed about the model of National Highways Authority of India (NHAI) which takes loans based on future revenues.

Having met PM Modi, Jagan cited the example of NHAI and clarified that the loans will be repaid by the state government. Nevertheless the financial experts believe that applying the NHAI model of taking loans doesn’t work with the case of APSDC. NHAI is creating valuable assets whereas APSDC is not creating any assets but is being used for schemes for the benefit of people.

Overall, the loans on APSDC keeps piling without creating any revenue/assets and this would push the state into a deep recession and would be extremely difficult to get over it.