State-Run Banks De­cide to Freeze Loans to Pun­jab

Lenders likely to ask Cen­tre to make good any losses they may have to suf­fer

The Economic Times - - Front Page -

Mum­bai: Be­lea­guered staterun lenders, grap­pling with mount­ing bad loans, de­cided on Mon­day to freeze lend­ing to the Pun­jab govern­ment. More than 30 bankers, led by State Bank of In­dia, also de­cided to ask the cen­tral govern­ment to make good any losses the lenders may suf­fer be­cause of the mis­match be­tween the value of food­grain in Pun­jab gra­naries and the loans pro­vided to buy them.

Af­ter an overtwo-hour-long meet­ing, the bankers unan­i­mously de­cided that they will not lend to Pun­jab un­less the is­sue of miss­ing food­grain is re­solved. The move could throw Pun­jab’s econ­omy into a tail­spin as the new pro­cure­ment sea­son has just be­gun and the state is among the big­gest buy­ers of food­grain.

Pun­jab Chief Min­is­ter Parkash Singh Badal met Prime Min­is­ter Naren­dra Modi on Mon­day to dis­cuss the is­sue.

ET was the first to re­port last week that the Re­serve Bank of In­dia had asked all banks to pro­vide for po­ten­tial losses in the food loans to the Pun­jab govern­ment af­ter sev­eral months of ne­go­ti­a­tions failed to re­solve the is­sue of seem­ingly miss­ing grain stocks. FOOD­GRAIN VAL­UED AT

SBI Chair­man Arund­hati Bhat­tacharya has con­firmed RBI’s direc­tive to banks on the Pun­jab grain loans

AP­PEARS TO HAVE VAN­ISHED FROM WARE­HOUSES

BANKS’ EX­PO­SURE TO PUN­JAB GOVT IS CLOSE TO

State Bank of In­dia Chair­man Arund­hati Bhat­tacharya con­firmed the cen­tral bank’s direc­tive pub­licly for the first time on Mon­day.

“Yes (we have been asked to pro­vi­sion). I don’t have the ex­act num­bers,” Bhat­tacharya told re­porters on the side­lines of a con­fer­ence or­gan­ised by the In­dian Mer­chant Cham­ber. The pro­vi­sions could amount to about Rs 3,000 crore and SBI may bear the brunt of it at an es­ti­mated one-fourth of the to­tal pro­vi­sions.

Min­is­ter of State for Fi­nance Jayant Sinha also ad­mit­ted to the gap be­tween ac­tual food stocks in ware­houses and what should have been.

He de­clined to an­swer a spe­cific qu- es­tion on the pos­si­bil­ity of a sim­i­lar mis­match in other states, only say­ing that there is a need for a sys­temic so­lu­tion. “That is pre­cisely why we need a sys­temic so­lu­tion to en­sure that what­ever needs to be re­solved across the var­i­ous agen­cies can be done in a struc­tured and sys­temic way.”

The Re­serve Bank of In­dia’s stip­u­la­tion means that all banks with loans to Pun­jab need to pro­vide at least 15% — spread over two quar­ters — against po­ten­tial losses as there is no se­cu­rity for the loans.

The bank­ing reg­u­la­tor be­lieves that given that the dis­crep­ancy has ex­isted for some years now and there are no signs of it get­ting re­solved, a pro­vi­sion has to be made even though it’s a sov­er­eign loan.

“All the lenders unan­i­mously agreed not to re­lease any amount to the Pun­jab govern­ment till the is­sues are re­solved,” said a banker who at­tended the meet­ing on Mon­day and did not wish to be iden­ti­fied. “Lenders will also re­quest a com­mit­ment from the cen­tral govern­ment in re­gard to re­pay­ment of the ir­reg­u­lar amount in the ac­count of Pun­jab.”

Sinha said the reg­u­la­tor’s de­ci­sion to or­der pro­vi­sion­ing was cor­rect, since that is pru­dent.

“A lot of or­gan­i­sa­tions are in­volved in this is­sue; we have to ar­rive at an agree­ment among all par­ties,” said Sinha. “The is­sue that RBI has raised is right if you look at it from the per­spec­tive of a reg­u­la­tor, what banks have ex­plained that is also cor­rect.”

“We are work­ing with the reg­u­la­tors as well as the banks and var­i­ous other govern­ment agen­cies to en­sure the mat­ter with re­spect to the food stocks in Pun­jab is sat­is­fac­to­rily re­solved,” Sinha said.

The state govern­ment has said it is dis­cussing the is­sue with the Cen­tre to ar­rive at a so­lu­tion.

“The mat­ter re­gard­ing the out­stand­ings/re­ceiv­ables per­tain­ing to the food credit ac­count of the state is al­ready un­der dis­cus­sion with GoI (govern­ment of In­dia),” the Pun­jab govern­ment said. “A joint com­mit­tee of GoI and state govern­ment has been look­ing into the gamut of is­sues on this ac­count, and the mat­ter is be­ing de­lib­er­ated upon so as to set­tle the claim of the FCI/GoP (govern­ment of Pun­jab).”

San­gita Me­hta & Saloni Shukla

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