Kerala cabinet approves notification for Guarantee Redemption Fund

Kerala cabinet on Wednesday approved the issuance of a notification to set up a Guarantee Redemption Fund (GRF) as per central guidelines.

The Centre has proposed the formation of the GRF as a buffer to manage the risks arising from guarantees extended by states to public sector undertakings, a CMO statement said here.

The investment in this fund should be increased over a period of five years to reach five per cent of the outstanding guarantees.

According to the guidelines issued by the Union Finance Ministry regarding borrowings for the financial year 2025-26, if the Reserve Bank of India's recommended investment is not made in the GRF by April 1, 2025, an amount equal to the shortfall or 0.25 per cent of the state's GSDP--whichever is lower--will be deducted from the state's overall borrowing limit for 2025-26.

This is the first time that the formation of GRF is being included in the criteria for determining the borrowing limit of states, the CMO said.

As a revenue-deficit state, the only way to invest in the GRF was by using borrowed funds, it said.

The cabinet meeting, chaired by Chief Minister Pinarayi Vijayan, decided to issue the notification to set up the GRF to avoid a reduction in the state's borrowing capacity for the current financial year as per the new guidelines, the CMO added.

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