State-Run Banks Decide to Freeze Loans to Punjab
Lenders likely to ask Centre to make good any losses they may have to suffer
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