**Executive Summary:**
This document addresses a request from the State Government of Telangana for restructuring the debt of its Corporations/SPVs, particularly concerning loans related to the Kaleshwaram Lift Irrigation Scheme. The Ministry of Finance clarifies the roles and considerations of Power Finance Corporation Limited (PFC) and Rural Electrification Corporation (REC) in this matter, as well as the State's responsibilities under the Fiscal Responsibility and Budget Management (FRBM) Act. REC Limited has already granted a time extension for project completion until December 2024.
**Key Points / Main Content:**
* **Telangana's Debt Restructuring Request:**
* The State Government of Telangana requested a restructuring of loans for Special Purpose Vehicles (SPVs) serviced from the State Consolidated Fund under the Kaleshwaram Lift Irrigation Scheme.
* **Role of PFC and REC:**
* The Kaleshwaram Irrigation Project Corporation Limited (KIPCL) was financed by Power Finance Corporation Limited (PFC) and Rural Electrification Corporation (REC).
* PFC and REC determine lending rates based on their cost of borrowing and the borrower's grading.
* REC has granted KIPCL a time extension for project completion until December 2024.
* Rebate on interest rate may be considered upon project completion.
* **Loan Amortization and Account Classification:**
* Changes to the loan amortization schedule would result in downgrading KIPCL's account classification from standard to substandard according to RBI guidelines.
* **State's Fiscal Responsibility:**
* The State Government of Telangana is responsible for fiscal management and stability under its Fiscal Responsibility and Budget Management (FRBM) Act.
* Compliance with the FRBM Act is monitored by the State Legislature.
* **Government of India's Support to States:**
* The Government of India provides financial support to states through tax devolution, grants-in-aid, and assistance for various projects and capital works.
**Impact Analysis:**
* **State Government of Telangana:**
* *Impact:* The State Government's request for debt restructuring is subject to the policies and considerations of PFC, REC, and RBI guidelines. The State is responsible for prudent fiscal management under the FRBM Act.
* *Action Required:* The State Government needs to comply with the FRBM Act, monitor its fiscal operations, and work with PFC/REC within the established guidelines for any loan restructuring.
* **Power Finance Corporation Limited (PFC) and Rural Electrification Corporation (REC):**
* *Impact:* PFC and REC are responsible for managing their loan portfolios and determining lending rates based on their cost of borrowing and borrower grading. They must adhere to RBI guidelines regarding loan classification.
* *Action Required:* PFC and REC should consider the request for loan restructuring within the framework of their lending policies and RBI guidelines, while also considering the progress and completion of the Kaleshwaram project.
* **Kaleshwaram Irrigation Project Corporation Limited (KIPCL):**
* *Impact:* KIPCL's loan terms and account classification are subject to the policies of PFC/REC and RBI guidelines. The project has been granted a time extension for completion.
* *Action Required:* KIPCL needs to focus on completing the project by the extended deadline and adhere to the loan terms and conditions set by PFC and REC.
Key Entities Referenced
Ministry of Finance: A department of the Government of India responsible for financial matters.
Telangana: A state in India that requested debt restructuring for its corporations and SPVs.
Kaleshwaram Lift Irrigation Scheme: A major irrigation project in Telangana, financed through SPVs and loans.
Kaleshwaram Irrigation Project Corporation Limited (KIPCL): A special purpose vehicle (SPV) established to construct the Kaleshwaram Lift Irrigation Project in Telangana.
Power Finance Corporation Limited (PFC Ltd.): A Non-Banking Financial Company (NBFC) that financed KIPCL.
Rural Electrification Corporation (REC Limited): A Non-Banking Financial Company (NBFC) that financed KIPCL and granted a time extension for project completion.
Reserve Bank of India: The central bank of India, which issues guidelines affecting loan classification.
Fiscal Responsibility and Budget Management (FRBM) Act: An act enacted by states in India, including Telangana, to ensure fiscal prudence and stability.
GOVERNMENT OF INDIA
MINISTRY OF FINANCE
DEPARTMENT OF EXPENDITURE
LOK SABHA
UNSTARRED QUESTION NO. 2401
TO BE ANSWERED ON MONDAY, 4th AUGUST, 2025
13 SRAVANA, 1947 (SAKA)
RESTRUCTURING OF DEBT OF VARIOUS CORPORATIONS/SPVS
2401. Shri Chamala Kiran Kumar Reddy
Will the Minister of Finance be pleased to state:
(a) the current status of the request from the State Government of Telangana for restructuring
of debt of various Corporations/SPVs owned by the State Government;
(b) whether the Government has issued or is considering to issue appropriate instructions to the
relevant financial institutions for the restructuring of these loans;
(c) if so, the details thereof and if not, the reasons therefor; and
(d) the steps taken/being taken by the Government to support States facing debt servicing
challenges?
ANSWER
MINISTER OF STATE IN THE MINISTRY OF FINANCE
(SHRI PANKAJ CHAUDHARY)
(a) to (c) A request was received from the State Government of Telangana regarding
restructuring of loans raised by the Special Purpose Vehicles (SPVs) that are serviced from the
State Consolidated Fund under Kaleshwaram Lift Irrigation Scheme. As per the information
received from Ministry of Power, the State Government of Telangana has been informed that
Kaleshwaram Irrigation Project Corporation Limited (KIPCL), a special purpose vehicle (SPV)
established to construct the Kaleshwaram Lift Irrigation Project in Telangana, was financed by
Power Finance Corporation Limited (PFC Ltd.) and Rural Electrification Corporation (REC)
Limited.These Non-Banking Financial Companies (NBFCs) raise funds from various sources
in the domestic and offshore markets. Based on their cost of borrowing, they determine the
lending rates, which also depend on the grading of borrower. The REC Limited has already
granted a time extension for the completion of works until December, 2024 at the request of
KIPCL. Further, it was also informed to the State Government that rebate on interest rate may
be considered upon the completion/closure of these projects. However, any change in loan
amortization schedule would result in the downgrade of KIPCL’s account classification (from
standard to Sub-standard) in the books of PFC/REC Ltd.in accordance with the guidelines
issued by the Reserve Bank of India.
(d) All States including State Government of Telangana have enacted their Fiscal
Responsibility and Budget Management (FRBM) Act, which makes the State Government
responsible to ensure prudence in fiscal management and fiscal stability by progressive
elimination of revenue deficit, reduction in fiscal deficit, prudent debt management consistent
with fiscal sustainability, greater transparency in fiscal operations of the government.
Compliance to the Fiscal Responsibility and Budget Management (FRBM) Act is monitored
by the State Legislature. The Government of India provides substantial financial support to
States through devolution of taxes & duties, grant in aid for Centrally Sponsored Schemes,
supports various projects under Central Sector Schemes and provided financial assistance for
capital works under the scheme for Special Assistance to States for Capital Investment.
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