DEBT MANAGEMENT

PRESENTED BY FARESH HAROON ISSAC KOSHY

What is Debt?
Debt: something owed, an obligation to pay

or render something to another.

What is Debt Management?

Debt management involves a designated

third party assisting a debtor with repayment of his or her debt. Debt Management is a structured repayment plan set up by a designated third party, either as a result of a court order or as a result of personal initiation.

 A debt management plan entails a series of

steps, which the third party service works on with the help of the debtor. The first step involves compiling a list of all creditors and the amounts owed to each. Some creditors are not eligible to be included in a debt management plan. Secured debt such as car loans and home loans are not included.

 Once a list of creditors is compiled and the

amount of debt is totalled, the debtors total income and expenditure are totalled as well. The third party agency assisting with the debt management plan then helps the debtor to determine the maximum amount of money available to allocate to the plan for debt repayment. In many cases, a third party service will attempt to settle some debt amounts and exclude or lower any interest charged during the repayment period.

Debt management
It is one of the key components of financial

strategy. Effective debt management can minimize interest costs and even stabilize local government financial positions. Periodic review of debt and re-financing when conditions are favorable are essential to effective debt management and capital planning.

How To Manage Debt ?

The increase in Public debt puts a burden on the citizens of the country. The burden of public debt adversely affect the growth and development of the economy. Therefore there is a need to effectively manage public debt.

METHODS OF MANAGING DEBT

Reduction in primary deficit
Reduction in growth of current expenditure Raising efficiency of borrowing program of

central govt. Reforms in debt management of states Foreign institutional investors and public debt Consolidated sinking fund Improving the state of debt market Disinvestment policy Proper monitoring of expenditure

1.Reduction in primary deficit Corrective action with respect to the growing internal debt must be carried out in two stages. A. Action must be directed toward slowing down the pace of growth of the debt ratio or reducing it to a reasonable level. B. Attempts must be made to contain most revenue expenditures within the revenues raised by the Govt. so that Govt's net borrowing is used only for productive purposes.

2.Reduction in Growth of current expenditure

Reduction in the government's consumption

expenditure for its staff. Reduction in subsidies. Reduction in capital assistance and subsidy to public enterprises. Liquidation of public debt.

3. Raising efficiency of borrowing Prog. of Central Govt.

The RBI has played a major role in improving the efficiency of borrowing programmes of the Central

Government. Since 1992, the RBI has been raising Central Government debts at market related rates. While deciding to issue a loan, RBI takes into account the cash needs of the government, the liquidity conditions in the market and primary and secondary market yields. All this has helped in making the borrowing programme more market oriented.

4.Reforms in Debt Management of States

While several reforms in debt management policy have been introduced in the respect of sale of central government securities, sale of state government loans continue to be on old pattern and procedures. Under the present system, there is no scope for better managed states to access funds at competitive rates of interest. Hence, it is necessary to bring flexibility in the borrowing programs of the state govts with the help of RBI initiatives.

5.Foreign institutional investors and Public debt

Foreign Institutional Investors have been

permitted to invest in government debt. In respect of government debt, they are permitted to invest only in government securities.

6.Consolidated Sinking Fund (CSF)

It is argued that there is an urgent need to

create a Consolidated Sinking Fund. The CSF has the objective of breaking the vicious cycle of rise in repayment, burden of public debt. Even the State Government should set up such a fund in view of problem of repayment of loan.

7.Improving the state of debt market

Since 1997, the RBI has taken various measures

to widen and deepen the debt market in India. These measures include uniform price auction of 91 days treasury bills, undertaking repos in non-government debt instruments, sale of capital index bonds, etc.

8. Disinvestment Policy
The government should disinvest public sector

units, especially, those which are not strategic, especially the sick ones. Disinvestment will enable the government to raise funds, which can be utilized to repay a part of the public debt.

9.Proper Monitoring of Expenditure

The Government should make effort, to monitor

the use of funds. The wastage of funds should be monitored by Government Authorities.

THANK YOU