Fiscal crunch: Telangana seeks Centre's help to restructure high-interest loans amid debt woes; looks to cut rates to 7%

Time of India

6 days ago

HYDERABAD: In the face of substantial financial challenges, the state govt is looking at central help to restructure current high interest rates on some loan repayments.
According to finance department sources, the previous administration had incurred huge debt due to high interest rates ranging from 10.75% to 11.25% on loans from Rural Electrification Corporation (REC) and Power Finance Corporation (PFC) etc.
, to finance irrigation projects such as Kaleshwaram and Palamuru-Rangareddy.
Specifically, off-budget bonds were issued through Special Purpose Vehicles (SPVs) to fund these projects. But as these SPVs do not possess independent revenue streams, the interest has to be serviced from the state's treasury.
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If the govt successfully negotiates a reduction to 7%, it would save approximately Rs 2,000 crore a month, which, in turn, could be deployed to support various development projects, sources said.
As there is a shortage of funds for capital expenditures, it has adversely affected ongoing development initiatives.
To date, only Rs 3,000 crore has been allocated to capital expenditure during the current financial year and the govt is looking at ways to address this shortfall.
Finance department officials cautioned that a failure to ease the debt burden can create major obstacles to the state's economic growth.
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It's also impacting the state's credit rating, officials said.
Last month, REC had issued a warning that some of these loans risked being categorised as Non-Performing Asset (NPA) if outstanding dues are not settled. This led the govt to pay Rs 1,393 crore to mitigate this risk. Currently, the state is spending an average of Rs 3,500 crore per month as interest payments alone on these debts.
Approximately 34% of the state's revenue is allocated to servicing interest and instalments, while another 35% is devoted to salaries and pensions.
This allocation results in a significant reduction in available funds for welfare projects, officials said.