Delhi–RBI MoU for Banking and Debt Management Framework

Delhi–RBI MoU for Banking and Debt Management Framework

Why in News? 

Recently, the Delhi Government entered into a landmark agreement with the Reserve Bank of India by signing a Memorandum of Understanding that places the national capital within RBI’s comprehensive banking and debt management framework, marking a significant step towards greater financial discipline.

Provisions of the Delhi–RBI MoU

• Under the Banking and Debt Management Framework MoU, the Government of National Capital Territory (NCT) of Delhi and the Reserve Bank of India (RBI) agreed on detailed financial governance arrangements.
• Under this MoU, the RBI will serve as the official banker for the Delhi Government. This means that all government banking transactions will flow through the central bank’s systems. 
• The RBI will handle government receipts and payments, ensure that accounts are maintained accurately, and provide standard banking services for the government’s financial operations.
• The Delhi Government can now borrow funds from the open markets through State Development Loans (SDLs). SDLs are debt securities issued by states and union territories under RBI supervision. Borrowing costs are generally around 7 percent.
• The MoU introduces professional cash management by RBI experts for the Government of Delhi. This includes systematic tracking of revenues, expenditure, and cash balances throughout the financial year.
• Under this system, idle cash balances that used to sit without earning interest are now automatically invested daily using RBI mechanisms. This will generate interest income for the government.
• The MoU also provides Delhi with access to low-cost liquidity facilities offered by the RBI, such as Ways and Means Advances (WMA) and Special Drawing Facilities (SDF). 
• Under the new framework, all funds raised through market borrowings must be used only for capital expenditure. 
• This agreement will be effective from January 9, 2026 onwards, giving Delhi its own independent banking and borrowing structure, under RBI’s professional framework.

Priority Sectors under the Delhi–RBI MoU

• Urban Infrastructure Development: The first priority sector under the MoU is urban infrastructure. The Delhi Government will use market borrowings only to build durable assets such as roads, bridges, flyovers, drainage networks, and public buildings. These assets support economic activity and reduce long-term costs.

• Water Supply & Yamuna Rejuvenation: Water security and river restoration form a major focus area. The Delhi Government has committed capital funds for modern water treatment plants, sewage treatment upgrades, and pipeline networks. A key priority is the Yamuna river clean-up, which requires long-term investment rather than short-term schemes.

• • Transport & Mobility Systems: The MoU places strong emphasis on public transport and urban mobility. Capital spending will support expansion of bus fleets, electric mobility infrastructure, depots, terminals, and last-mile connectivity. By using low-cost RBI-managed borrowing, the government can replace high-interest short-term funding.

• Health Infrastructure: Health infrastructure is another priority sector. Funds raised under the RBI framework will support construction of hospitals, specialty blocks, diagnostic centres, and emergency facilities. The focus remains on physical infrastructure rather than salaries or consumables.

• Digital Public Assets: The framework allows investment in digital public infrastructure that improves service delivery. Examples include integrated command centres, financial management systems, and civic service platforms.

Delhi’s Current Banking and Debt Management

• At present, the banking and debt management system of the Government of NCT of Delhi operates under a transitional and limited framework. 
• The Delhi Government’s banking transactions are presently handled through a centralised public account maintained with the Government of India. The receipts, payments, and cash balances of the Delhi Government are accounted for as part of the Union government’s consolidated account.
• All banking operations of the Delhi Government, including the processing of receipts and expenditures, are currently executed through accounts hosted under systems supervised indirectly by the central government’s banking arrangements. 
• The Delhi Government’s ability to raise funds for public expenditure comes mainly through alternative credit arrangements, including loans from the National Small Savings Fund (NSSF) and occasional central government assistance. 
• Existing debt management is handled internally by the finance department of the Delhi Government, without professional debt managers or specialist frameworks. The absence of RBI-level debt oversight limits the state’s ability. 
• The Finance Department of Delhi is responsible for all current financial management functions, including budgeting, banking operations, cash management, and debt servicing. There is no formal integration with central financial systems such as the Public Financial Management System (PFMS) for autonomous decision-making. 

Impact of the Delhi–RBI MoU

• Budgeting: Future budgets will follow clear financial rules set by the RBI framework. The Delhi Government will prepare its fiscal plans on the basis of predicted receipts and available cash balances. Budget estimates will include interest earnings from invested surplus funds, which will strengthen revenue projections.  

• Borrowing Practices: The government will raise funds primarily through State Development Loans (SDLs) at competitive interest rates of around 7 percent, replacing ad-hoc loans that cost over 12–13 percent previously. Lower rates will shrink debt servicing costs each year, freeing funds for development projects instead of interest payments.  

• Cash Flow Management: Cash flow management will improve markedly under RBI oversight. The government will use automatic daily investment mechanisms to place surplus funds in safe interest-earning avenues rather than leaving them idle. This will increase interest income. Access to Ways and Means Advances and Special Drawing Facilities will help the government cope with short-term mismatches between receipts and expenditures.

• Cooperative Federalism: The MoU will strengthen cooperative federalism by formally integrating Delhi’s finances with national monetary and fiscal frameworks. Delhi will now stand on par with other states and Union Territories that already work with the RBI for banking and debt management. This integration will deepen policy coordination on public finance.

• Reduction of Fiscal Risks: The presence of professional debt managers at the RBI will lower the chances of unexpected interest rate shocks affecting the government’s debt portfolio. Continuous investment of surplus cash will protect against loss of interest and unexpected shortfalls. This will also reduce the risk of fiscal slippages.