bonds and Food Corporation of India bonds. The government has used the status frequently in the past to push its subsidy plans.
Top bankers, on condition of anonymity, maintained that they will be comfortable in subscribing to these bonds only if they have SLR status. Owing to the slowdown in the economy and burgeoning non-performing assets in their accounts, banks have turned risk-averse, preferring SLR bonds.
As per the Centre’s debt restructuring package, states will bear half of the liability of distribution companies or state electricity boards in a phased manner in two to five years by issuing bonds, while the balance will be restructured by banks by extending the repayment period from three to five years.
State governments have two options: repay debt or adopt the debt recast plan and issue bonds.
Banks have indicated that if state governments — especially those that have already breached their Fiscal Responsibility and Budget Management (FRBM) Act target of 3% of gross state domestic product or are near to it — choose to issue bonds, they would find it difficult to subscribe to them.
The package was planned keeping in mind the FRBM target, which means states must bring down their overall borrowings.
Meanwhile, the DFS has also approached the RBI seeking a special dispensation to help state governments align their respective restructuring packages with the one formulated by the Centre. Currently, the package for a state such as Uttar Pradesh is slightly different from that of the Centre.
“We have asked the RBI to treat this alignment process under a special dispensation and not a ‘second restructuring exercise’ to avoid any complications,” an official said.
About eight states have so far come up with their restructuring plan and now they will sit with banks to finalise the terms of restructuring as per the one approved by the Centre. Uma Shankar said the process has started and if states ask for more time later, they would consider extending the application of the restructuring scheme that ends on December 31.