Delhi Signs MoU with RBI to Manage Finances

Government of National Capital Territory of Delhi (GNCTD) has signed a Memorandum of Understanding (MoU) with the Reserve Bank of India, bringing Delhi under the RBI’s full banking, cash management and public debt framework for the first time.

This marks a historic shift in Delhi’s financial governance, aligning it with the structured fiscal management framework followed by Indian states.

Key Highlights of MoU

• RBI’s Role Expanded
  • RBI will act as:
    • Official Banker
    • Debt Manager
    • Financial Agent
      for the Government of Delhi.
  • Centralises borrowing operations, cash-flow monitoring, and treasury management under one professional authority.
• First-Time Structured Framework
  • Earlier, Delhi’s banking and borrowing operations were fragmented and not fully integrated with RBI oversight.
  • The MoU introduces professional, transparent and disciplined fiscal management.

Borrowing Framework under RBI Oversight

State Development Loans (SDLs)

• Delhi can now raise funds through State Development Loans, a standard market borrowing instrument used by states.
• Impact on borrowing costs:
  • Earlier borrowing costs: 12–13%
  • Expected SDL rates: ~7%
• Result: Lower interest burden and improved debt sustainability.

Liquidity Support Mechanisms

• Access to:
  • Ways and Means Advances (WMA) – short-term liquidity support
  • Special Drawing Facility (SDF) – additional low-cost liquidity
• Helps manage temporary mismatches between receipts and payments without high-cost emergency borrowing.

Cash Management Reforms

• Automatic investment of surplus cash
  • Idle balances will be professionally invested instead of remaining unused.
• Daily cash-flow monitoring
  • Ensures efficient utilisation of public funds.
• Reduced interest losses
  • Better timing and planning of borrowings and expenditures.

Separation of Public Accounts- A Structural Reform

• A Central Government notification (January) formally separated:
  • Delhi’s public accounts
    from
  • Government of India’s accounts
• Significance:
  • Gives Delhi an independent banking and borrowing identity
  • Places its finances on a separate administrative footing, similar to states.

Why This MoU Matters

• Fiscal Discipline: Structured debt and cash management under RBI supervision
• Transparency: Centralised oversight improves accountability
• Efficiency: Lower borrowing costs and optimal use of surplus funds
• Investor Confidence: Professional debt management improves market perception
• Governance Reform: Corrects a long-standing anomaly despite Delhi being the national capital

The move aligns Delhi with international best practices in public finance management.

Broader Context

• Indian states face increasing pressure to:
  • Maintain fiscal discipline
  • Fund infrastructure and welfare programmes
• With RBI managing finances, the Delhi government can focus on:
  • Policy priorities
  • Infrastructure development
  • Social sector spending
    while technical financial operations are handled professionally.

Reserve Bank of India (RBI)

• India’s central bank, established in 1935
• Functions:
  • Banker to the Union and State Governments
  • Manager of public debt
  • Controller of monetary policy
• Provides:
  • Cash management services
  • Market borrowing support
  • Liquidity facilities (WMA, SDF)

State Development Loans (SDLs)

• Market-based borrowing instruments issued by states
• Managed by RBI
• Used for:
  • Financing fiscal deficits
  • Capital expenditure
• Typically lower-cost and more disciplined than ad-hoc borrowing