RBI’s Guidelines on State ‘Guarantees’ on Borrowing

On 16th January, 2024, a working group constituted by the Reserve Bank of India (RBI) made certain recommendations to address issues relating to guarantees extended by State governments.

  • The working group, constituted in July 2022, comprised of members from the Ministry of Finance, Comptroller and Auditor General of India, and some State governments.

Recommendations

Expanded Definition of Guarantee

  • The Working Group proposes a broader definition of ‘guarantee’ to encompass all instruments which create an obligation on the guarantor to pay.
  • There must not be any distinction between conditional or unconditional, financial or performance guarantees while evaluating fiscal risk.

Government ....

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