BackRBI to allow partial write back of Punjab food credit provisions
Central bank may allow lenders to write back 10% of provisions after at least a year of monitoring repayment
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Mumbai: The Reserve Bank of India (RBI) has dismissed banks’ requests to write back the entire provision made against their exposure to Punjab food procurement agencies. It will, however, allow lenders to write back 10% of provisions after at least a year of monitoring repayment, said three bankers with direct knowledge of the development, including Ramesh Sobti, managing director and CEO of IndusInd Bank Ltd.
In April, RBI had asked banks to set aside 15% provisions after a Rs12,000-crore mismatch was found between food stocks available in Punjab warehouses and loans granted over the past decade. That amount has since ballooned to Rs30,000 crore, which RBI allowed banks to convert to a 20-year term loan at an interest of 8.25%, lower than current lending rates, Mint reported on 10 October.
RBI’s directive has allowed banks to partly release provisions by January 2018 and keep the balance 5% over the entire term of the loan, said Sobti in a conference call with analysts after IndusInd Bank announced earnings last week.
Thus, any impact on bank’s profitability will be visible only from the fourth quarter of fiscal 2018, said a banker mentioned above on condition of anonymity as he isn’t allowed to speak to the media. State-owned lenders have suffered collective losses for the past couple of quarters as they have made increasing provisions for the Rs6.3-trillion toxic asset pile in the banking system.
But banks led by State Bank of India, the country’s largest lender, continue to negotiate with the regulator for a full writeback. “Typically, banks don’t keep provisions against their exposure to state food procurement government agencies as it has an underlying sovereign guarantee," said the second banker, who works with a large public sector bank.
There was no response to an email sent to RBI.
Even as talks on provisions continue, RBI has allowed banks to disburse Rs20,000 crore food credit to Punjab for the next kharif season.
“The state has regularized their outstanding dues for the past 2 years starting FY15. The central bank has taken cognizance of this and decided to release funds for the next season," said the second banker mentioned above.
Both regulators and banks are aware the Punjab issue is sensitive as it is the grain bowl of the country. It also has the single highest share among states in the total outstanding food credit of Rs1 trillion in the country.
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