Government-owned Punjab & Sind Bank has filed a court case against the Madhya Pradesh government and its electricity utility for non-payment of dues, even as the local government is planning to borrow Rs 750 crore from the bond market.
The amount under dispute is about Rs 65 crore, which is the total outstanding (interest and principal) from Madhya Pradesh State Electricity Board (MPSEB). The state government had stood guarantee for the debt taken by its utility.
“The state government should have honoured the guarantee. If the statutory liquidity ratio (SLR) bonds are not honoured, it would be difficult for banks to purchase state government securities,” said R P Singh, chairman and managing director of P&SB. Neither MPSEB Chairman R C Sahni nor Secretary P K Vaishya could be reached for their comments.
Debt instruments issued with the backing of the state government guarantee are allowed by the banking regulator to be counted for fulfilling the SLR requirement, which now stands at 24 per cent of a bank’s net time and demand deposits.
P&SB and a clutch of other banks had subscribed to the bonds issued by MPSEB in tranches and such papers have started maturing from 2004. The PSB had invested Rs 27.4 crore in SLR bonds and Rs 5 crore in non-SLR bonds. The bank is now claiming Rs 65 crore with interest.
Subsequently, the state was divided and Chattisgarh was formed. It was agreed that the liabilities of the undivided MPSEB would be shared by the respective state electricity boards in the ratio of 80:20, with MPSEB taking the larger share. But MPSEB neither paid the interest nor repaid the principal when it became due, the bank said.
Later, MPSEB offered to settle 73 per cent of the dues in July 2008. But when the banks went for the final settlement, MPSEB, according to P&SB officials, went back on its word.
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Thereafter P&SB filed a recovery suit against the state government and MPSEB in the Debt Recovery Tribunal, Delhi. The next hearing is slotted for February 2009.
“At least the state government and the electricity board should honour their own commitment to pay 73.38 per cent of the bond outstanding,” Singh added.
According to RBI norms, banks have to make full provision if SLR bonds are not serviced. “This is a huge amount for a small bank like P&SB,” Singh said.