CAG reports concerns regarding the processing of bank summary expenses

The Comptroller and General Audit (CAG) raised concerns about the treatment of bank recapitalization spending in 2017-2018 and 2018-2019, stating that he was against the provision of the law on fiscal responsibility and management. budget (FRBM).

For the recapitalization of public banks, the government invested respectively Rs 80,000 crore in 2017-18 and Rs 1.06 lakh crore in 2018-19.

The audit noted that in the expenditure budget, the aforementioned PSO recapitalization expenditure had been deducted from the income from the issuance of special securities, while in the revenue budget, the income from the securities was deducted from the expenditure. recapitalization. Added that during the two years, the funds for these investments were raised by the government through the issuance of special securities not transferable to the same PSOs.

According to the CAG, the finance ministry on the matter had said that the bank recapitalization was not fiscally neutral but liquidity neutral, as the issuance of securities would be reflected in the government’s total debt. In addition, coupon payments for special securities, when made, would be reflected in the deficit for the year concerned.

The concept of recapitalization bonds was first introduced in 2017. Previously, the capital injection was carried out by the government into a bank through cash outflows from the Consolidated Fund of India, which resulted in resulted in fiscal pressure. In 2017, the government introduced recapitalization obligations.

As part of this, the government issues recapitalization bonds to a public sector bank that needs capital. In turn, the banks subscribe to the bond against which the government receives the money. Now the money received goes as the bank’s equity. Thus, the government does not have to pay anything out of pocket.

Apart from this, the CAG also noted the operating deficit of the National Small Savings Fund (NSSF) which includes all collections of small savings. “The NSSF balances do not explicitly disclose the large accumulated deficit in the fund, which will need to be addressed by the government in the future. There is also insufficient disclosure that significant amounts have been provided by the NSSF to fund government revenue expenditure which should be served through budget support. He also raised concerns about the inadequacies of disclosure under the FRBM rules.

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