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Banks refuse loans for fee reimbursement

Posted On: 16/02/2011      Updated On: 19/02/2011
State Govt Has Exceeded Borrowing Limit Of 14K Cr: SBI & SBH
Banks including State Bank of India and State Bank of Hyderabad have informed the state government that they will not release funds for the fee reimbursement scheme.

In fact, even if colleges apply for loans on government’s counter guarantee (as was planned earlier before the Supreme Court rapped the government), the banks will not sanction the loans. They say the state has exceeded its borrowing limit of Rs 14,000 crore. The banks stated on Tuesday that they would approve loans only if the college managements agree to mortgage their property.

According to sources, the state is currently funding several of its welfare schemes including major ones like Jalayagnam and Rajiv Gruha Kalpa using borrowed funds. As the state government has not paid up even the first quarter of interest to the banks so far, the banks (SBI & SBH) on Tuesday wrote to the government and sent a copy to college managements, stating their decision not to sanction further loans to the government. The government has borrowed most of the funds from the Reserve Bank of India (RBI).

The banks’ decision not to release funds for the scheme has come as a severe blow to the state government which was asked by the Supreme Court on Monday to release arrears under the fee reimbursement scheme immediately. The state will now have to find ways to raise Rs 3,500 crore by the end of the month to comply with the SC verdict.

Sources said that the government is now weighing various options to raise funds. “We will now have to mortgage government land. If the colleges do not give time till April for the state to release funds, we will be left with no option but to ask for Centre’s help to run the scheme,” said an official. During the next financial year, over Rs 7,000 crore will be required to fund the scheme.

Meanwhile, the college managements have refused to mortgage their property to run the scheme even as the state is trying for an out-of-court settlement with the managements, wherein the latter will be asked to approach the banks directly for funds. But colleges are not convinced, although they were agreeable to the idea until the SC verdict came.

“Now, even the banks have informed us that they will not be able to release money as the government has exceeded its credit limit. We cannot mortgage our personal property for the sake of sustaining the scheme. None of the colleges would agree to the current proposal of mortgaging the college property,” said Ramesh Nimmatoori, president, Consortium of the Andhra Pradesh Engineering and Professional College Managements.

The government and the college managements have scheduled a meeting on February 16 to discuss the issue.

“The government had earlier decided that it would release half of the amount immediately and another half before April. Without the bank loan, even this will not be possible. Hence, now, we have no option but to close down colleges after February 16,” said Ramesh Nimmatoori.

Even governor E S L Narasimhan has taken a keen interest in the scheme and has asked the BC welfare department to submit a detailed report on the same. He reportedly told chief secretary S V Prasad that the government should try for central help to sustain the scheme for the time being.

The governor also reportedly said that mortgaging the government land should be considered as the last option as it would send a wrong signal to people. “I will also use my good offices to get funds from central government,” Narasimhan reportedly said. NOT CREDIT-WORTHY

Kiran Kumar government is in a real bind as it can neither pay fees on its own nor it can stand guarantee for loans to colleges as proposed before the SC struck down the move. Governor Narasimhan was said to have asked the state to move the Centre for help, and offered to use his good offices for it.
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