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Facing severe financial crunch, GHMC hypothecates itself to SBI

Under the arrangement, the corporation will open an escrow account with complete control over its finances

HYDERABAD: In a major development, Greater Hyderabad Municipal Corporation (GHMC) has entered into an agreement hypothecating itself to the State Bank of India (SBI).

Under the arrangement, the corporation will open an escrow account with complete control over its finances. SBI will withdraw its interest and principal amount from the account before the rest is used by the GHMC for its operational and maintenance works.

Escrow is use of a third party capable of holding assets on behalf of two parties, who are in the process of completing a transaction. The assets could be money, funds, stocks, and so on. Thus, an escrow account is a third party account which holds assets until the conclusion of a specific event or time.
As per agreement entered into by the SBI, the GHMC will repay loans by levying special development charges on citizens. The state government has given counter-guarantee for loans being taken by GHMC, releasing GO 697 in this regard.

As of now, the corporation has been paying Rs 1 crore per day towards interest for loans it has taken for its flagship programmes like Strategic Road Development Plan (SRDP), Comprehensive Road Maintenance Programme (CRMP). Hyderabad Road Development Corporation Limited (HRDCL) has taken up rejuvenation of lakes and development of links roads and infrastructure projects. As on date, the corporation has been paying Rs 30 crore interest on loans of Rs 4,596 crore.

In response to an RTI filed by city activist M. Srinivas, the civic body has said the government has so far not released any amounts for SRDP, lake developments and link roads. It said that the corporation has spent Rs 1,691 crore on SRDP, Rs 223 crore for developing link roads and Rs 88.47 crore on development of lakes. Since 2014, GHMC has taken Rs 3,460 crore loan from SBI, Rs 495 crore by raising municipal bonds and Rs 140 crore from Housing and Urban Development Corporation Limited (HUDCO).

The corporation is already paying 8.65 per cent interest on Rs 2,500 crore taken for SRDP and 7.2 per cent interest on Rs 1,460 crore taken for CRMP. This apart, it has been repaying 8.90 per cent interest on Rs 200 crore, Rs 190 crore and Rs 100 crore raised through municipal bonds for SRDP, in addition to 10.15 per cent interest on Rs 100 crore and 9.90 per cent interest on other loans taken from HUDCO.

When asked about the RTI, a senior GHMC official, requesting anonymity, said GHMC is already facing severe financial crunch and is yet to pay salaries for the current month. It has been repaying Rs 30 crore towards interest and principal amounts will begin from 2023 and have to be paid by 2030.

The official admitted that SBI has authority over GHMC's finances. He said the corporation has no choice but levy special development charges from users, apart from revising residential property tax. He said if the state government does not come to the rescue of corporation, it would go bankrupt and unable to embark on any infrastructure projects in near future.

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