In a move aimed at addressing mounting financial issues and borrowing restrictions, the Kerala state cabinet has approved the establishment of a Guarantee Redemption Fund. The decision was made during a cabinet meeting held on July 3rd, 2025, in Thiruvananthapuram.
The Guarantee Redemption Fund is designed to meet liabilities arising from guarantees provided by the state government for public sector undertakings, in case these entities fail to repay their loans. This fund aligns with the 12th Finance Commission’s recommendation that states set aside a specific percentage of the total guaranteed amount as a precautionary measure against potential defaults by public sector undertakings.
The central government has been encouraging states to implement such funds, citing it as a crucial step towards financial stability and risk mitigation. The decision comes amidst concerns over Kerala’s financial situation, which has been under stress due to various factors.
The establishment of this fund is expected to help Kerala comply with the directives issued by the central government and manage its liabilities more effectively. However, it remains to be seen how this will impact the state’s overall financial health in the long term.
Meanwhile, the Reserve Bank of India has been monitoring the situation closely, providing guidance and support where necessary. The centre has also been supportive, expressing confidence in Kerala’s ability to navigate through these challenging times.
