Bankers, however, say that since the loan has been given to a central government agency, there is no risk of default and it should not be marked for provisioning. Photo: Mint
Bankers, however, say that since the loan has been given to a central government agency, there is no risk of default and it should not be marked for provisioning. Photo: Mint

RBI justified in asking banks to make provisions on foodgrain loans to Punjab: Sinha

RBI is justified in asking banks to provide for the loans granted to Food Corporation of India for food procurement in Punjab, said minister of state for finance Jayant Sinha

Mumbai: The Reserve Bank of India (RBI) is justified in asking banks to provide for the loans granted to Food Corporation of India (FCI) for food procurement in Punjab, said minister of state for finance Jayant Sinha.

“From a regulator’s perspective, the RBI is right but the banks are also right in their explanations on the issue," said Sinha on the sidelines of an event on Monday.

According to a report in The Economic Times, RBI has asked banks to provide 15% against the 12,000 crore in loans that were extended to FCI to procure foodgrain on behalf of the Punjab government.

Bankers, however, say that since the loan was given to a central government agency, there is no risk of default and it should not be marked for provisioning.

“What is the point in providing for loans which have been given to central government agencies? There are always going to be mismatches when we are dealing with a complicated food procurement and distribution system. These things need time to resolve themselves," said a senior official at a state-run bank, seeking anonymity as the matter is under discussion.

Officials from the central government, the state government of Punjab and bankers are meeting on Monday to discuss the issue.

“We are working with the regulators and various authorities to ensure that the matter with respect to the food stocks in Punjab is resolved," said Sinha, adding that dialogue is on between all stakeholders.

At the start of each fiscal year, the banking regulator clears a cash credit limit (CCL) for lending to FCI to procure foodgrain from procurement agencies of various states. This cash credit is disbursed by banks. The agencies get grains from farmers and store them in their facilities on behalf of FCI.

The procurement agencies then charge FCI for their services.

“For the past few years, FCI has claimed that the charges by procurement agencies have been over inflated and that they can’t pay it. Now these pending charges have accumulated and the excess amount spent on procurement is not corresponding with the stock of grains with FCI," said a second public sector banker, also seeking anonymity.

RBI is said to have asked for a report from the state government on the status of food grain stock and the amount spent on procurement of grains. The central bank’s directive to provide for these food grains came after it studied this report.

Loans to FCI are classified under food credit by banks. As per RBI data for the fortnight ended 18 March, outstanding food credit given out by scheduled commercial banks stood at 1,05,254 crore.

FCI is the nodal agency which procures and then distributes foodgrain within the country. The agency was constituted to ensure that farmers get a minimum support price for the grains they sell to procurement agencies. Farmers are, however, free to sell their grains to other bidders such as traders and millers.

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