Rule 280 of The General Financial Rules 2017 Execution of Government Guarantees

Rule 280 of The General Financial Rules 2017 Execution of Government Guarantees

Original Rule Text

Rule 280 Execution of Government Guarantees.(i) Once the guarantee is approvedby Ministry of Finance, theguarantees will be executed andmonitored by the AdministrativeMinistries concerned, who arealso required to report the statusin this regard on an annual basistill they are invoked or areobliterated. The followingguidelines need to be kept inview while issuing guarantees-(a) The obligations of theborrower to service the loanand the guarantee, and themonitoring of the utilizationof the guaranteed loans, andadherence to the terms andconditions of the guaranteeby the Borrower shall beensured by theAdministrative Ministry/Department through a back-to- back agreement with theborrower which may bedrawn up and implementedto the satisfaction of theAdministrative Ministryconcerned. For thispurpose, necessary recordsto monitor the guarantee,including servicing ofguarantee fee shall bemaintained by the LineMinistries / Departmentsconcerned.(b) Administrative Ministryshould ensure that there areno inconsistencies betweenthe guarantee approvalgiven by the Ministry ofFinance and the guaranteeagreement signed by it withthe borrower. Theobligations enforced by theGovernment as guarantorwould be duly factored in.(c) Deviations / modifications /amendments on the mainconditions of the guarantee,particularly with reference tothe rate of interest on theloan to be guaranteed andobligations of theGovernment to be covered,should not be referred in aroutine manner to BudgetDivision for clarification/change. The AdministrativeMinistry concerned shallmake out a separate case,fully justifying the need forconsidering any proposedmodifications /amendments, after thoroughscrutiny of the request of theborrower for the same,before placing theseproposals before the BudgetDivision for a final decision.(d) In respect of bilateral andmultilateral credit, Standardformat of Guarantee of thelending institutions may beexamined with a view thatthe same are not incontra-diction with theconditions of sovereignguarantee prescribed in thischapter, before signing bythe Administrative Ministry/Department. The guaranteeagreement may also notomit any conditions asbrought out in this Chapter.New conditions orcovenants, and differences,if any, shall be referred toBudget Division of theDepartment of EconomicAffairs (DEA) forconcurrence.(e) Guarantee proposalsapproved by the BudgetDivision shall have to beexecuted in the samefinancial year. If theguarantee/ loan agreementis not signed in the samefinancial year as that of theapproval of the guaranteeproposal, the guaranteeproposal shall have to besubmitted again.(f) The guarantee shall holdonly for the specific purposeagreed to by the BudgetDivision.(g) Guarantee given byGovernment of India shallbe non – transferrable andwould cease to exist in casethe ownership of the entity istransferred fromGovernment of India, unlessthe Guarantee is re-confirmed by the BudgetDivision.(ii) The Financial Advisers inMinistry/ Department will performthe responsibility of maintenanceof records and reporting includingfor the Finance Accounts and theIGAS, through the office ofController/Chief Controller ofAccounts.

Visual Summary

Guarantee Execution

Guidelines for issuing and managing government guarantees.

Key Responsibilities

Roles of Administrative Ministries and Finance Ministry in guarantee process.

Compliance & Scrutiny

Ensuring strict adherence to terms and proper approval for modifications.

Executive Summary

Rule 280 of The General Financial Rules, 2017 outlines the procedures for the execution and monitoring of Government Guarantees. It mandates that Administrative Ministries are responsible for executing and monitoring guarantees approved by the Ministry of Finance, ensuring adherence to terms and conditions through back-to-back agreements with borrowers. The rule emphasizes the need for consistency between approval and agreement terms, requiring thorough justification and Budget Division approval for any modifications. It also specifies that guarantees must be executed within the same financial year of approval and are non-transferable, ceasing if ownership of the entity changes unless re-confirmed. Financial Advisers play a crucial role in maintaining records and reporting.

In-Depth Analysis of Rule 280

Rule 280 provides comprehensive guidelines for the execution and ongoing management of Government Guarantees, ensuring financial prudence and accountability. It delineates responsibilities and sets clear expectations for compliance and reporting.

Breakdown of the Rule:
  • Execution and Monitoring (Sub-rule i): Once the Ministry of Finance approves a guarantee, the concerned Administrative Ministries are tasked with its execution and continuous monitoring. This includes annual reporting on the status until the guarantee is invoked or expires.
  • Guidelines for Issuing Guarantees (Sub-rule i, clauses a-g):
    • Borrower Obligations: Administrative Ministries must ensure the borrower’s adherence to loan and guarantee terms through back-to-back agreements, maintaining records for monitoring, including guarantee fees.
    • Consistency: No inconsistencies should exist between the Ministry of Finance’s approval and the final guarantee agreement with the borrower. Government obligations as guarantor must be fully accounted for.
    • Modifications: Deviations or amendments to main guarantee conditions (e.g., interest rates, government obligations) require a separate, fully justified case and prior approval from the Budget Division.
    • Bilateral/Multilateral Credit: Standard guarantee formats from lending institutions must be reviewed for consistency with sovereign guarantee conditions before signing. New conditions or differences require Budget Division concurrence.
    • Timely Execution: Approved guarantee proposals must be executed within the same financial year. Failure to do so necessitates re-submission of the proposal.
    • Specific Purpose: Guarantees are valid only for the specific purpose agreed upon by the Budget Division.
    • Non-Transferability: Government of India guarantees are non-transferable and cease if the entity’s ownership changes, unless re-confirmed by the Budget Division.
  • Role of Financial Advisers (Sub-rule ii): Financial Advisers in Ministries/Departments are responsible for maintaining records and reporting, including for Finance Accounts and IGAS, through the Controller/Chief Controller of Accounts.
Practical Example:

Imagine the Ministry of Power wants to guarantee a loan for a state-owned power generation company from a multilateral bank. According to Rule 280, after the Ministry of Finance (Budget Division) approves the guarantee, the Ministry of Power must sign a back-to-back agreement with the power company. This agreement would detail the company’s obligations for loan servicing, guarantee fees, and adherence to all terms. If, during the project, the power company requests a change in the loan’s interest rate, the Ministry of Power cannot simply approve it. It must prepare a detailed justification, scrutinize the request, and obtain fresh approval from the Budget Division of the Ministry of Finance before any modification can be made to the guarantee terms. Furthermore, the Ministry of Power’s Financial Adviser would ensure all records related to this guarantee are meticulously maintained and reported annually.

Related Provisions

Understanding Rule 280 is enhanced by reviewing these related provisions:

Learning Aids

Mnemonics:
  • E.M.A.C.T.S.P. (Execution, Monitoring, Agreement, Consistency, Timely, Specific, Permanent): This helps remember the key aspects of Rule 280: Execution and Monitoring by Administrative Ministries, Agreement (back-to-back), Consistency with approval, Timely execution (same financial year), Specific purpose, and Permanent (non-transferable unless re-confirmed).
Process Flowchart:
MoF ApprovesGuaranteeAdmin MinistryExecutes & MonitorsEnsure AgreementComplianceModification/DeviationNeeded?YesJustify & GetMoF ApprovalNoGuaranteeConditions Met?NoRe-submit/Cease GuaranteeYesFA Maintains Records& ReportsEnd: GuaranteeInvoked/Obliterated

Multiple Choice Questions

1. According to Rule 280 of The General Financial Rules, 2017, who is primarily responsible for executing and monitoring government guarantees once approved by the Ministry of Finance?

  • A) The Budget Division
  • B) The Controller General of Accounts
  • C) The Administrative Ministries concerned
  • D) The lending institutions
Show Answer

Correct Answer: C) The Administrative Ministries concerned

2. Rule 280 of The General Financial Rules, 2017 states that any deviations or modifications to the main conditions of a guarantee, particularly regarding interest rates or government obligations, must be referred to which entity for a final decision?

  • A) The Administrative Ministry’s Financial Adviser
  • B) The Controller/Chief Controller of Accounts
  • C) The Budget Division of the Department of Economic Affairs
  • D) The borrower entity
Show Answer

Correct Answer: C) The Budget Division of the Department of Economic Affairs

3. As per Rule 280 of The General Financial Rules, 2017, what happens if a guarantee proposal approved by the Budget Division is not executed in the same financial year?

  • A) It is automatically extended to the next financial year.
  • B) It must be re-submitted for approval.
  • C) The Administrative Ministry can proceed with execution with a written justification.
  • D) The Financial Adviser can grant an extension.
Show Answer

Correct Answer: B) It must be re-submitted for approval.

4. Rule 280 of The General Financial Rules, 2017 specifies that Government of India guarantees are non-transferable. Under what condition would such a guarantee cease to exist if the ownership of the entity is transferred from the Government of India?

  • A) Automatically, without exception.
  • B) Only if the new owner explicitly rejects the guarantee.
  • C) Unless the Guarantee is re-confirmed by the Budget Division.
  • D) If the Administrative Ministry approves the transfer.
Show Answer

Correct Answer: C) Unless the Guarantee is re-confirmed by the Budget Division.

5. Which of the following is a responsibility of the Financial Advisers in Ministry/Department as per Rule 280 of The General Financial Rules, 2017?

  • A) Approving all guarantee proposals.
  • B) Negotiating terms with bilateral and multilateral credit institutions.
  • C) Maintaining records and reporting for Finance Accounts and IGAS.
  • D) Directly executing guarantee agreements with borrowers.
Show Answer

Correct Answer: C) Maintaining records and reporting for Finance Accounts and IGAS.

Frequently Asked Questions

What is the primary role of Administrative Ministries regarding government guarantees under Rule 280 of The General Financial Rules, 2017?

Administrative Ministries are responsible for executing and continuously monitoring government guarantees once they are approved by the Ministry of Finance. This includes ensuring the borrower adheres to the terms through back-to-back agreements and reporting the status annually.

Can the terms of a government guarantee be easily modified as per Rule 280 of The General Financial Rules, 2017?

No, Rule 280 requires a rigorous process for modifications. Any deviations or amendments to the main conditions, such as interest rates or government obligations, must be thoroughly justified by the Administrative Ministry and receive prior approval from the Budget Division of the Department of Economic Affairs.

What happens if a government guarantee is not executed within the financial year it was approved, according to Rule 280 of The General Financial Rules, 2017?

According to Rule 280, if a guarantee proposal approved by the Budget Division is not executed within the same financial year, the proposal must be re-submitted for approval.

Key Takeaways

  • Administrative Ministries are central to executing and monitoring government guarantees.
  • Strict adherence to approved terms and conditions is mandatory, with any modifications requiring high-level justification and approval from the Budget Division.
  • Guarantees are non-transferable and time-bound for execution within the financial year of approval.
  • Financial Advisers play a critical role in ensuring proper record-keeping and reporting.

Conclusion

Rule 280 of The General Financial Rules, 2017 establishes a robust framework for the execution and oversight of government guarantees. By clearly defining roles, emphasizing strict compliance, and mandating rigorous approval processes for any changes, it aims to safeguard public funds and ensure that guarantees are issued and managed with the utmost financial propriety and accountability. Adherence to these guidelines is crucial for maintaining fiscal discipline and transparency in government financial operations.

Related posts:

  1. Rule 277 of The General Financial Rules 2017 Government of India Guarantee Guidelines
  2. Rule 281 of The General Financial Rules 2017 Review of Guarantees
  3. Rule 283 of The General Financial Rules 2017 Invocation of Guarantee
  4. Rule 279 of The General Financial Rules 2017 Levy of Guarantee Fees