Banks told to stop funding states using future revenue

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The Centre andRBIhave pulled up banks for lending to entities based on the escrow of the states future revenue streams or using collectorates and courts as security, with the finance ministry seeking an end to the practice as it found that most of the loans were given by Psu banks, including SBI.

While SBI was the first to be asked to stop such lending, a source at the countrys top lender said that it extended loans toAndhraPradesh government based on a letter from the state government, which suggested that the required approvals were in place.

Last year, in a Communication to

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state, the Union finance ministry had stated that pledging of future tax revenues was not in line with Article 266 (1) of theConstitution, which mandates that all taxes and loans should flow into theConsolidated Fundof the state. The letter followed a reference to the Centre that the state government had transferred assets to the AP State Development Corporation (APSDC) to raise funds.