Food Scan­dal in Badal’s Pun­jab Rains Woes on Bank Books

Grain van­ishes from Pun­jab godowns; RBI tells lenders to pro­vide for po­ten­tial losses

The Economic Times - - Front Page -

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.

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