Part 1- 50-year interest-free loan to states of 1 lakh crore.

Trends in Capex by States- Their capex growth was flat in FY23 compared with 29% growth in FY22, : The States’ Capital outlay-GDP ratio is expected to improve from 2.3% in 2021-22 to 2.9% in 2022-23, Debt-to-GSDP ratio: The state’s debt-to-GSDP ratio was the highest in Punjab (48%), followed by Rajasthan and Haryana.

Significance of Capex:- Multiplier effect- crowd in private investment and ease critical supply constraints. Future Growth- by creation of employment and capacity development. Inclusive Growth:health, education and other social services. impact of capex in one State can have positive externalities on that of others

Failure in increasin capex by states- Decision-Making on Political Consideration- freebies and populist promises, Limited Fiscal Space- Staes Unable to reduce their revenue expenditure on they end up cutting down on capex to meet the deficit norms of FRBM.

Way Forward- mandate to look into the issue of freebies and how to disincentivise states from indulging in such fiscal imprudence. Need for a supervisory body such as an Expenditure Council,guidelines and foster agreement on the best practices for State governments in terms of resource allocation.States must mainstream capital planning and consider creating a capex buffer fund. Channelizing Capex- direct and Indirect Channel.

1-High gross non-performing assets (GNPA):RBI FSB report (2023), Gross NPAs ratio for UCBs was 8.7% whereas it is just 3.9% for SCBs. 2- High influence of top management:almost like a promoter-driven company wherein the top management, has significant influence over all the matters. 3-High cost-income ratio: roughly 10% higher as compared to commercial banks- operational inefficiency. 4- Face high credit, market, and liquidity risk: RBI’s Financial Stability report (June 2023). 5- Low share in banking sector: just about 3%.

New branches: UCBs can now open new branches up to 10%of net earlier (RBI), who follow FSWM criteria.

Coordination with RBI: RBI has notified a nodal officer for closer coordination and focused interaction.

Supervisory Action Framework (SAF) - for corrective action by UCBs and/or supervisory action by RBI on breach of the specified thresholds.

Scheme for voluntary conversion of eligible UCBs into SFBs in 2018 by RBI.

Umbrella organisation (UO)- for capital, technological, fund management and consultancy services.