In Punjab: Provisions on food loans, no relief to banks by RBIhttps://indianexpress.com/article/business/banking-and-finance/in-punjab-provisions-on-food-loans-no-relief-to-banks-by-rbi-2815975/

In Punjab: Provisions on food loans, no relief to banks by RBI

RBI has asked banks to make 15% provisioning from profits in 2 installments.

The Reserve Bank of India is unwilling to relent on its order mandating banks to make provisions on food loans to Punjab state procurement agencies, after the stocks were found inadequate to cover these loans in the state’s warehouses. Leading banks and the food ministry sought relief from making provisions on this exposure, especially since such loans were covered by state government guarantees.

“We have had a number of meetings on this with the RBI. But so far the order mandating provisions stands,” a banker familiar with the matter said. When asked why banks need to make provisions for these loans as these are covered by state guarantees, the banker said: “No bank can invoke these guarantees, more so since banks have to support the national cause of food procurement. So the RBI took the view that such loans need to be provisioned for.”

Security in the form of food stock for around Rs 12,000 crore worth of bank loans to Punjab state agencies were found missing, on which the RBI asked banks to make 15 per cent provision from their profits in two installments. When contacted by The Indian Express on the issue, the RBI said it does not comment on client relationships. The finance ministry, on its part, has asked Punjab agencies to prepare audited cost sheets of grain procurement accounts since 2013-14. The Food Corporation of India would thereafter settle its dues to the state government.

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Announcing its annual results on Wednesday, Punjab National Bank said it has provided for Rs 166.36 crore in January-March quarter for food credit availed by the Punjab government. PNB MD & CEO Usha Ananthasubramanian said on Wednesday the lender has gone by the RBI rule and made provision in this regard. “Our Punjab exposure is Rs 2,218 crore. We are allowed to do (provisions) in two quarters. We have taken the liberty. So this quarter the provision is 7.5 per cent or Rs 166 crore. In June (quarter), we have to do another Rs 166 crore provision,” she said.

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Punjab is the biggest contributor to the central pool of grain stocks. Punjab has maintained that the Centre owns around Rs 20,000 crore to the state towards food procurement, a figure that the central government and the FCI are verifying. The banks had refused to extend cash credit limit to Punjab state agencies last month after the RBI directive, but this issue was resolved after Punjab chief minister Parkash Singh Badal met Prime Minister Narendra Modi on April 18. The RBI thereafter extended the validity period of the authorisation of Rs 17,523 crore cash credit limit till May 31.