Punjab foodgrain issue: Jayant Sinha says Centre working with regulators & bankshttps://indianexpress.com/article/business/business-others/punjab-foodgrain-issue-jayant-sinha-says-centre-working-with-regulators-banks-2759768/

Punjab foodgrain issue: Jayant Sinha says Centre working with regulators & banks

The RBI had told banks to set aside 15% as provisions when it was discovered that the Punjab govt warehouses did not have enough foodgrain stocks to cover the loan amount.

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Reserve Bank directed Indian banks to make a provisioning for Rs 12,000-20,000 crore cash credit extended for foodgrain procurement.

Minister of State for Finance Jayant Sinha on Monday said that the government is working with the regulators as well as Indian banks to ensure that the issue pertaining to missing food stocks in Punjab is satisfactorily resolved. “We have to investigate the matter and once we find a solution to the issue, we will communicate it to you (media),” said Sinha in Mumbai.

This after the Reserve Bank directed Indian banks to make a provisioning for Rs 12,000-20,000 crore cash credit extended for foodgrain procurement. The RBI had told  banks to set aside 15 per cent as provisions when it was discovered that the Punjab government warehouses did not have enough foodgrain stocks to cover the loan amount.

On Monday, Arundhati Bhattacharya, chairman of the country’s largest lender, SBI said the bank has been asked to make provisions for cash credit extended for food procurement. Bhattacharya, however, declined to disclose the bank’s exposure to such loans. “I don’t have the exact numbers,” said Bhattacharya.

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When asked if the current problem involving the missing foodgrain in Punjab could affect other states too, Sinha said, “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 issues raised by the RBI are pertinent and the issues raised by the banks are also correct,” Sinha added.

According to a banker who is familiar with the food credit business, banks are totally in the dark on foodgrain stocks in godowns. While banks extend the credit to Food Corporation of India (FCI), foodgrain stocks are under the control of the state government. The interest on this line of credit is  normally charged at the Base rate.

“Banks should verify whether the required stocks are in the godowns. If provisioning has to be made by banks, the interest rate charged will also go up,” he said. While state and Centre loans are considered sovereign borrowings, that status has taken a hit with the Punjab food credit saga.

FCI depends on an annual cash credit limit of around Rs 55,000 crore public sector banks for procurement of rice and wheat from the farmers which in turn is distributed to states for the Public Distribution System.

FCI avail these loans against the value of foodgrains held with the corporation. On the other hand, the Centre’s outstanding dues to FCI shot up from Rs 7,377 crore five years ago to Rs 56,114 crore in FY15.

Meanwhile, a Punjab government statement said all payments are released by FCI directly to the bank without recourse to the state, after receipt of stocks and as per the specification fixed by the Centre. These deliveries are dependent on the schedule fixed by FCI from time to time as per demand in various parts of the country, it said in the release.

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