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LATEST NEWS UPDATES | Grain vanishes from Punjab godowns; may burn Rs 12,000-crore hole in bank books -Sangita Mehta & MC Govardhana Rangan

Grain vanishes from Punjab godowns; may burn Rs 12,000-crore hole in bank books -Sangita Mehta & MC Govardhana Rangan

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published Published on Apr 15, 2016   modified Modified on Apr 15, 2016
-The Economic Times

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 Rs 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 food grain 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 Rs 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 Rs 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.

"RBI does not agree," one banker said. "It is not (convinced) about the recoverability of the receivables. Hence, it has asked banks to make provisions."

The development, a bolt from the blue for the banking system, is also a huge embarrassment for the Badal government whose popularity is under pressure from a resurgent Aam Aadmi Party (AAP) and Congress. The state goes to polls in 2017.

The Akali Dal, a partner in the ruling NDA at the Centre, runs the state in alliance with BJP. The state government is believed to have told banks and RBI that there is no deficit and it would be able to repay the loans. An anguished banker told ET that his bank's entire profit may be wiped out by the provisioning. "All the parties involved, state government, Centre and RBI, were aware of the deficiency — the stock versus the loan amount, but it is always the banks which have to pay the price. Why can't the government set up an enquiry about the missing stock?"

Although the issue of 'deficient stocks' in Punjab's granaries have been discussed for months, bankers did not think of provisioning as the loans were considered 'zero-risk' since they went into the state government's books.

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The Economic Times, 15 April, 2016, http://economictimes.indiatimes.com/news/economy/agriculture/grain-vanishes-from-punjab-godowns-may-burn-rs-12000-crore-hole-in-bank-books/articleshow/51833750.cms?


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