Pushed to a corner on the Punjab grain loans issue, banks led by State Bank of India (SBI) have decided to approach the Reserve Bank of India (RBI) seeking a six month deferral of the central bank’s provisioning directive.

Simultaneously, banks will also approach Food Ministry seeking commitment for time bound repayment of the shortfall of ₹20,000 crore, being the estimated value of missing foodgrains stocks in Punjab warehouses, sources in the banking industry said.

Banks’ exposure to the Punjab government on the foodgrains procurement front is estimated at ₹40,000 crore. Indications are that RBI may not relent on provisioning front if no commitment were to come from the Centre.

While FCI is disowning liability because the underlying goods are not with it, the Punjab government maintains the discrepancy is a reconciliation issue between its agencies and FCI.

With Rabi crops having started arriving in the market and the fact that they have to be procured, it is no surprise that the Punjab grain loan issue has reached the door steps of the Prime Minister’s Office.

The RBI had directed banks to make a 15 per cent provision of the gap – difference between amount of loans provided and the value of foodgrain stocks in granaries. The RBI wants 7.5 per cent to be provided in March quarter and the remaining 7.5 per cent in June quarter.

Although banks had been asked to make a provision, the RBI had not asked them to categorise the ₹20,000 crore gap, as non-performing assets.

Banks are of the view that they are being unjustly required to take the pain in the Punjab grain loan saga, which originated in 2014.

The issue of missing stocks related to the pre-2014-15 period when the Food Corporation of India used to reimburse Punjab’s agencies such as Pungrain and Punjab State Civil Supplies Corporation for purchasing wheat and paddy from the farmers. The grains were then handed over to FCI for running the public distribution system. After the 2014-15 rabi season, FCI had been paying the banks directly against the cash credit limit availed by the Punjab government for procurement of wheat and paddy.

Banks now see themselves as the “victims” and “fall guys” in the dispute between FCI and the Punjab Government.

Following the RBI directive mandating 15 per cent provisioning, the banks on Monday had decided to stop lending to Punjab Government.

Why should banks take a hit of ₹3,000 crore for a dispute that is essentially between a central government agency (FCI) and Punjab State Government? Do banks have enough profits to adjust this amount even it may be over two quarters, ask the bankers.

As far as the banks are concerned, they want the money back or be shown the stocks, instead of facing the pain of provisioning.

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