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Art 292 of the Constitution of India


and Fiscal Responsibility and Budget
Management Act 2003 & Rules provides the
power of Central Government to give
Guarantees

GFR 245

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1. Power of giving guarantees vests with Ministry of
Finance
2. The following guidelines are to be followed by
Ministries/Departments for recommending the
Guarantee:
I. Proposal must be justified by Public Interest (borrowing
by Public Sector Institutions for approved development
purpose) or borrowing by Public Undertaking from
Banks for working capital and other purpose.
II. Ministry/Dept. before sending the proposal must have
consulted Financial Adviser

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The following consideration shall be kept in view:
a)Public Interest
b)Credit-worthiness of the borrower to ensure that no undue
risk is involved
c)The yields of the loan
d)Conditions prescribed in the guarantees to ensure
continued credit-worthiness of the borrower.
III. Proposal should be submitted to MOF(Budget). No
guarantee will be given without approval of MOF(Budget)
IV.Govt. Guarantee is not available for private sector
V.Guarantee, normally, not extended to external commercial
borrowing
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VI. Government Guarantees may be given on all soft loan
components & not on Commercial loan components
VII. In case of Power Sector, guarantee on commercial loan
components can be considered
VIII. Guarantee will not be given in case of Grants
IX.Conditions, if any, should be made by Government while
giving guarantee such as: period of guarantee, levy of fee to
cover risk, mortgage or lien on assets, submission of
periodical reports to Govt., right to get accounts audited,
right to very the continued credit-worthiness etc.
GFR 246 (1)

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1. All borrowing by PSU from Multilateral Agencies would be direct
(without GOI intermediati0n) on the terms mutually agreed upon
and approved by GOI
2. Where such agreement involves Govt. Guarantee, prior approval
from Budget Division is obtained
3. Borrowing should relate to approved projects
4. Where Guarantee is to be given by GOI, the PSU should enter into
an agreement with GOI for the payment of “Guarantee Fee” on the
principal amount of loan and loan outstanding
5. PSU should bear exchange risk and get the funds directly on terms
and conditions prescribed by lending agency

GFR 247
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1. Rate of Guarantee Fee (GF) is specified by Budget
Division from time to time
2. Fees to be levied on non-fund based borrowing
(letters of credit, Bank Guarantee etc.)
3. GF is levied before Guarantee is given; thereafter
every year on first of April
4. When the GF not paid on due date it should be
charged at double the rate

GFR 248(1& 2)

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1. Integrated Financial Adviser (IFA )of each Ministry
should review quarterly all guarantees
2. Examine whether the borrower is discharging
repayment/interest obligations
3. IFA ensure maintenance of guarantee in GFR 43

GFR 249 (1) & (2)

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1. Guarantees given to RBI/other Banks/Industrial and
Financial Institutions for repayment of principal and
interest, Cash Credit Facility, Providing Working
Capital to Companies, Corporation and Co-operative
Societies etc.
2. Guarantees given for repayment of Share Capital,
payment of minimum annual dividend and repayment
of bonds or loans, debentures issued or raised by
Statutory Corporations and Financial Institutions.
3. Guarantee given to International Financial
Institutions/Foreign Govt./Foreign Lending Agencies

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4. Counter Guarantees to Banks in consideration of Letter of
Credit or Authority to Foreign Suppliers for supplies made
or service rendered
5. Guarantees given to Railways/State Electricity Board etc.
for due and punctual payment of dues by Companies or
Corporation
6. Performance Guarantees given for fulfillment of Contracts
or Projects
7. Performance Guarantees given for fulfilling of
contracts/projects awarded to Indian Companies in foreign
countries
8. Others
GFR 249(4)
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1. Statement showing the Guarantees by the GOI is to be
annexed to Demand of Grants by each Ministry
2. Guarantees for Principal & Interest should be shown
separately
3. Statement should show the position up t0 31st March of
the 2nd preceding year (Ex. Budget documents for 2004-
05 should show the figures of 31st March 2003)
4. Ministry should also certify that figures shown is
tallying with the figures supplied to CGA
GFR 250

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1. Obligation may be discharged by sanctioning loan
equal amount to the amount of guarantee
outstanding with the approval of Budget Division.
2. Any payment on this account, will finally charged
to Guarantee Redemption Fund maintained under
Public Account

GFR 251

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