DANGER BELLS: RBI to freeze AP’s finances!

Reserve Bank of India (RBI) had set the danger bells ringing for the finances of Andhra Pradesh. On Thursday, the Central Bank informed the state that it has slipped into the overdraft facility. Using the Ways and Means facility, AP took Rs 700 crore from the RBI earlier this month. After that got exhausted, the state availed Rs 145 crore on Monday (March 16), Rs 117 crore on Tuesday and Rs 500 crore on Wednesday from the central bank. On Thursday, it went into overdraft.

As per the rules, in dire financial situations, states can avail ‘Ways and Means’ facility and raise upto Rs 700 crore and another Rs 500 crore under the Special Ways and Means option. Usually these two facilities will not attract any interest if they are repaid in 30 days. If the state fails to repay it in the 30 days period, then the amount will be treated as ‘overdraft’ and the government will be given a final time of 14 days to repay the money. If it failed for the second time then, RBI will charge 9.5 per cent interest.

RBI has now given Andhra Pradesh 14 days time from Thursday to pay the money. If not paid, the amount will attract 9.5% interest. If situation worsens, RBI may even freeze all financial transactions of the state and initiate steps to recover the amounts taken from it by the state. Such step will be highly damaging to the reputation of the state in the investors.