Kerala govt revises loan guidelines for local bodies for revenue-generating projects

The Kerala government has amended the guidelines governing loans available to local bodies for revenue-generating projects, such as the construction of shopping complexes, bus stands, and markets. Previously, local self-government bodies, including gram panchayats and municipalities, obtained loans from the Kerala Urban and Rural Development Finance Corporation Limited (KURDFC) after receiving government approval.

The latest order, dated August 2026, stipulates that no funds can be utilized by the government to repay these loans. In the event of a default on loan repayment, a departmental inspection will be conducted, and the borrowed amount will be deducted from the local body's general purpose fund and transferred to the financial institution.

Local bodies are now obligated to establish an escrow account specifically for loan repayment, with project revenues to be deposited into this account. However, certain local bodies have been found to be neglecting this requirement. The government's decision to revise the guidelines is motivated by numerous issues, such as excessive expenditure over income, insufficient reserve funds, delays in project implementation, and a high volume of pending applications for non-income-generating projects, including the construction of office buildings for local bodies.

Under the revised guidelines, the loan amount must not surpass the estimated project cost. The use of own funds is permissible only if the loan amount and interest are insufficient to cover repayment obligations. To be eligible for a loan, Gram panchayats and municipalities must develop a project plan, design, and detailed estimate using PRICE software, and submit these documents for inspection by the respective financial institution following approval from an authorized officer.

Additionally, a consent letter must be submitted, confirming that the local body is capable of repaying the loan. If the local body fails to meet repayment obligations, the government reserves the right to deduct the loan amount from its general purpose fund and transfer it to the bank.

The KURDFC or any other financial institution providing the loan must ensure the financial capability of the local body to repay the loan. Applications from local bodies must be submitted to the Joint Director, Local Self Government Division (LSGD), who will review the recommendation and reject the application if the civic body has a negative balance.

The tender process for the project cannot commence until the government provides its in-principle approval for borrowing. All terms and conditions must be provided in English, in full sentences, and cannot be abusive or personal. The commenting platform has been updated, and users must abide by the community guidelines to post comments.

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