Will back public banks' Rs 12,000 cr loans to Punjab agri sector, govt likely to tell RBI

Public sector banks (PSBs) to which Punjab owes Rs 12,000 crore may not have to provision for these because the loans are apparently backed by sovereign guarantee.

The central government is likely to tell the Reserve Bank of India (RBI) that state-owned banks will not need to provision for the dues extended to Punjab for its food procurement programme, as they will get absorbed, the Business Standard has learnt.

For the long term, the Centre would also speed up the process of online tracking and procurement of foodgrain by the Food Corporation of India (FCI), to avoid the kind of controversies that cropped up with Punjab.
 

It has also asked other states from which the FCI procures foodgrain to go through their books again and bring to the Centre's notice any discrepancy in food procurement numbers.

In April, the Punjab government had claimed that it is owed Rs 20,000 crore by the Centre in foodgrain procurement dues. While the amount is still being verified, central government sources said these dues accumulated over the last 10-15 years because of the difference between the prices at which the state's agencies procures from farmers and the prices at which the FCI picks the foodgrain from Punjab.

"We are in the process of finding out exactly where and how much food stock we have. It is an ongoing process but our view is that these loans are covered by a sovereign guarantee so why do you want it to be provisioned?" said a senior government official aware of the deliberations between officials from the finance ministry, the RBI and banks.

"If everything is clear, the RBI should not have to worry. Even if there is some shortfall, which may be possible, the FCI is saying it is accumulated over time. It has sovereign guarantee. It will be absorbed by the government," the official said.

As reported by the Business Standard earlier, sources in the FCI have disputed Punjab government's claims. The FCI has said the amount the Centre owes the state cannot be higher than Rs 5,000-7,000 crore.

Punjab Chief Minister Parkash Singh Badal visited New Delhi on April 18 and met Prime Minister Narendra Modi and Food Minister Ram Vilas Paswan. He sought an immediate release of cash credit limit worth Rs 20,094 crore to enable the state government to make timely payments to farmers for wheat procurement.

According to reports, the Centre has already released Rs 10,000 crore of that amount.

Claims by the Punjab government and the discrepancies in the amounts owed by the Centre have also led to a comprehensive review of the procurement process. The government is hastening the process of making procurement and tracking completely online, as announced by Finance Minister Arun Jaitley in his 2016-17 Budget speech.

"An online procurement system will be undertaken through the FCI. This will usher in transparency and convenience to the farmers through prior registration and monitoring of actual procurement," Jaitley had said on February 29.

"The idea is to correct such discrepancies between what a state claims and what the FCI claims. We want all this to be online so we know what is happening. We are tightening everything across the system," said a second official.

Other states, including Haryana, have also been asked to look at their outstanding dues, if any, with their food grain stocks to reconcile possible discrepancies. Officials admit that the Punjab situation was a blessing in disguise. As a result of it, a check is now taking place on the entire food procurement system.

"It is not a bad thing sometimes to have a pressure in the system, to ensure that the system actually works properly. Clearly, there is some shrinkage and something has happened. We don't know how big it is. We are working on finding out and we want to fix this systemically. We want to put some pressure in the system through the RBI and banks so that both the FCI and states clean up their act," the second person said.

The Centre has set up a procurement target of 30 million tonnes for the 2016-17, starting this month. The wheat procurement has already started and the state has purchased about three million tonnes as on April 17.

Punjab and Haryana contribute in a big way to the central pool.

THE MYSTERY OF MISSING FOODGRAIN

WHAT'S IT ALL ABOUT?

• RBI found out in April that food stock worth Rs 20,000 crore were missing from FCI godowns in Punjab. The state has claimed that it procured the stocks after taking loans from a consortium of banks led by SBI
   
• Banks lend money to FCI to procure foodgrain from the open market. The state government is supposed to procure and distribute these according to the annual plan

RBI TO BANKS: MAKE PROVISIONING

• RBI directed banks to make 15% provision on loans of Rs 12,000 crore, which can result in total provisions of up to Rs 3,000 crore. Banks have been asked to make 7.5% provision each in the March and June quarters

BANKS DEMUR

• The Punjab government has denied the RBI's claim of any shortfall in stocks or misuse of funds. A consortium of banks has decided to stop lending to the state government until the issue is resolved

CENTRE'S ASSURANCE

• Banks have claimed that loans to states are sovereign in nature and therefore there is no question of default. Thus, there is no need for provisions, government likely to tell RBI