Thiruvananthapuram: The state government spent most of the proceeds of the masala bonds raised abroad on zero-interest yielding welfare projects – allegedly in violation of Article 293(1) of the Constitution.
Moreover, the government paid Rs 313.77 crore as interest on the money raised, official figures show. Kiifb had raised Rs 2,150 crore via masala bonds at a comparatively high interest rate of 9.723% and had parked the funds at a lower rate of interest in banks. The government has so far spent Rs 2,076.11 crore of the corpus, according to its own data.
As of January 13, as many as 734 projects of 18 departments have received funding. The majority are spread across four departments -- general education (234), public works (211), health & family welfare (77), and water resources (74).
Though government claims that Kiifb is a corporate body, most of the projects undertaken by the agency are welfare projects that would not yield any returns – which would have helped in repaying loans. Some of the projects involved improving basic school infrastructure, improving health infrastructure, paying for land acquisition and construction of bridges and roads. Such projects could easily have been financed with low interest-bearing development grants, of the sort issued by agencies such as the World Bank.
In 2019-20, Kiifb paid Rs 401.12 crore to service its entire debt -- masala bonds, loans availed from banks and other financial institutions (Nabard, SBI, Union Bank, Indian Bank, Syndicate Bank), KSFE bonds and guarantee commission.
“More than Kiifb’s way of spending the funds, what makes it more dubious is that the funds have been availed at a high interest rate from overseas markets. The Canadian pension fund investment, that was being transacted at a small rate of interest to the tune of three to four percentage before, was availed at an exorbitant rate by Kiifb. Instead, we could have floated bonds under agencies like the Kerala State Industrial Development Corporation like many other states. State financing agencies are availing refinancing funds at 9-9.25% interest. The rate of interest could have been 7.5-8% which is the usual rate of borrowing for other state government-guaranteed bonds,” a government official said.
Even before the comptroller and auditor general termed the Kerala infrastructure investment fund board’s practice of availing funds from overseas markets unconstitutional, a 2019 audit had flagged the unhealthy practice of raising money at high interest and parking the funds in private banks.
In addition to Rs 2,150 crore raised through masala bonds, Kiifb also availed loans from Nabard (Rs 565 crore at 9.30%), SBI (Rs 1,000 crore at 9.15%), Indian Bank (Rs 500 crore at 9.15%) and Union Bank of India (Rs 500 crore at 8.95%). All these loans were secured for a period of 10-12 years with a repayment period moratorium of two years. These would mean that future governments will have to repay it, as the government is the guarantor for all loans availed by Kiifb.