Food Scandal in Badal’s Punjab Rains Woes on Bank Books
Grain vanishes from Punjab godowns; RBI tells lenders to provide for potential losses
MC Govardhana Rangan & Sangita Mehta
Mumbai: The splotch of red ink on bank balance sheets is set to become bigger as a new scandal in the form of disappearing food stocks in Punjab godowns threatens to burn a .₹ 12,000-crore hole in their books and embarrass the Parkash Singh Badal administration. The Reserve Bank of India (RBI) has ordered all banks with exposure to the Punjab government’s food borrowing programme to provide for potential losses after discovering that foodgrain supposed to have been bought with bank funds has vanished from godowns.
At least four people familiar with the matter said RBI’s directive has alarmed banks who now have to provide at least 15% of the loans, or a total of .₹ 2,250 crore, in March and June quarters. State Bank of India, one of the lenders, has called a meeting on April 18 to discuss the issue amidst fears that the amount involved would be far higher, about .₹ 20,000 crore. SBI Chairman Arundhati Bhattacharya declined comment on the issue. The RBI stance is unusual from one aspect. Normally, all state government borrowings are sovereign and banks have been telling the regulator that there is no need to provide for potential losses. But the regulator has insisted on this move, underlining once again RBI Governor Raghuram Rajan’s take-no-prisoners approach when it comes to treating bad loans.
Bankers did not think of provisioning earlier as the loans were considered ‘zero-risk’ since they went into the state’s books
“FDA is well ahead of schedule in achieving the GDUFA goal to significantly reduce the backlog and our ultimate goal of eliminating it,” OGD Director Kathleen Cook said.
Leading Indian firms such as Dr Reddy’s Labs, Sun Pharma and Cadila have been shaken by FDA action in the past few months and have been working hard to ensure compliance. The US market is critical for Indian drug companies as it accounts for almost half their revenue. The improved approval rate could lead to an improvement in performance, analysts said. Investment research firm Jefferies said it expects improved Q4 earnings at Indian drug firms that would be led by exclusivity benefits, new launches and price hikes in the US.
However, the firm also said it will look for comments from Indian companies on the status of past inspections carried out by FDA. Since January, 11 Indian companies have been inspected by the US regulator, of which seven have received corrective measure notices, or Form 483, from the regulator. “We believe that FDA is re-inspecting all facilities with Form 483s issued in the past 12 months and the overhang will continue for some time,” Jefferies observed in its research note.