Moneylenders and banks consider the financial health of the borrower while giving loans. At times when the financial health of the borrower is not up to the mark, they lend loans at higher interest rates. That means there is a risk with the loan but the higher interest compensates for the risk.
The same has happened with Andhra Pradesh as well. The state government is cash-strapped and unable to pay salaries in July. The state has finally managed loans in the securities auction at the RBI. It has got 2000 Crore paying the highest interest among all the states that went for loans in this auction.
AP will be charged 7.15% and 7.19% respectively on two loans of 1000 crores each. Even North-East states like Assam (6.33%) and Backward states like Bihar (6.75%) paid less interest than what Andhra Pradesh has paid. AP Government has borrowed 18,100 Crore in just thirteen weeks.
The coming days are going to be even difficult. We are just into the fourth month of this financial year and the state government is allowed only around 20,000 Crore loans which will be exhausted next month.
