India cbank sees stress on state finances from 2017-18

Last Updated: Thu, Jan 10, 2013 14:00 hrs

MUMBAI, Jan 10 (Reuters) - India's central bank raised concerns over states governments' debt repayment capacity from fiscal year 2017/18 because of higher market borrowings and the recently announced bailout scheme for state-owned power companies.

"The increase in market borrowings of state governments since 2008-09 could lead to large repayment obligations from 2017-18 onwards," the Reserve Bank of India said in its annual publication on state finances, 'State Finances: A Study of Budgets of 2012-13', released on its website.

State governments raised a gross 1.25 trillion rupees ($22.89 billion) until Jan. 4, of the total 2.19 trillion rupees of gross allocation for the 2012-13 fiscal year.

Under the debt restructuring of state power distribution companies, state governments are required to take over 50 percent of their outstanding short-term liabilities as on March-end through issuance of special securities.

States are required to issue special securities to lenders in a phased manner over two-five years and redeem the same from 2017-18 onwards in annual instalments over the next 10 years.

"...the overall repayment pressure could be further aggravated from 2017-18 for states that decide to participate in the scheme for financial restructuring of state discoms," the RBI said.

In September, the government had approved a plan to bailout cash-strapped power distributors with more than $35 billion in debt.

($1=54.6 rupees) (Reporting by Neha Dasgupta; Editing by Subhranshu Sahu)

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