Revised scheme for Guarantee Redemption Fund

The Punjab government today said it has brought revised scheme for the constitution and administration of the Guarantee Redemption Fund for meeting its obligations arising out of the guarantees issued on behalf of state-level bodies.
It will come into force with effect from the financial year 2017-18.
Stating this here today, an official spokesman of finance department said that in terms of the 12th Finance Commission recommendations, the state had introduced the 'Guarantee Redemption Fund Scheme' with an objective to meet its obligations arising out of the guarantee extended to state level entities, so that this guarantee money should create a sinking fund to provide for the contingencies.

"Accordingly, over the period 2013-14 to 2015-16, the state was required to contribute minimum amount of 1,241.58 crore (Finance Accounts 2015-16 AG Punjab). However, poor recovery and non contribution to the Guarantee Redemption Fund, has put the state fiscal to a great risk, and the state government is now forced to bailout some of the state public sector enterprises (SPSEs) which had borrowed using state guarantees," the spokesman said.
The spokesman further added that the accumulations in the Guarantee Redemption Fund would be utilised only towards the payment of the guarantees issued by the Punjab government and invoked by the beneficiaries and not paid by the institution on whose behalf guarantee was issued.

Giving a brief account regarding contribution to the Guarantee Redemption Fund under revised scheme, the spokesman said that the fund would be setup by the government with an initial contribution of minimum 1 per cent of outstanding guarantee at the end of the previous year and thereafter minimum 0.5 percent every year to achieve a minimum level of three percent in next five years.

The fund would be gradually increased to a desirable level of 5 per cent.
"In order to enable transfer of the total amount of contribution to the fund, the government will make suitable budget provision on the expenditure side of their budget," he added.

The revised scheme for constitution and administration of the Guarantee Redemption Fund of Government of Punjab has also opted special measures to ensure the efficiency of fund administration.
The spokesman informed that the Guarantee Redemption Fund would be administered by central account section of the concerned bank subject to such directions or instructions as the Punjab government may issue from time to time.
He said that the Government would pay to Bank a commission at the rate of 1/8 percent of one percent of the turnover of the Fund or at the rate to be mutually decided from time to time.