Punjab food scam: Bankers say could stop lending to state

Some thirty odd bankers led by State Bank of India, which are staring at heavy losses to the tune of Rs 12,000 crore from the unfolding food scam in Punjab, today discussed all options, including to stop lending to the state government.
The decision was taken by a consortium of banks which held a meeting in New Delhi today to take stock of the development wherein they have found foodgrain worth Rs 20,000 crore are missing from the FCI godowns in Punjab, which the state claimed to have procured after taking loans from the banks.
"Stopping further lending to the Punjab government is an option we have discussed if the state or the central agency Food Corporation do not resolve the issue at the earliest," a senior official of a public sector lender told PTI while refusing to offer more details.

He said the meeting was attended by GM-level officials and was held in the national capital.
According to media reports, foodgrain worth Rs 20,000 crore procured by the Punjab government has gone missing from its godowns.
The RBI has asked banks to make 15 per cent provision on loans of Rs 12,000 crore which can result in total provisions of up to Rs 3,000 crore on account of the scam. Banks have been asked to make 7.5 per cent each provisions in the March and June quarters.

SBI Chairperson Arundhati Bhattacharya at a function earlier in the day said her bank has been asked by RBI to make adequate provisions. But she too refused to share more details.

Minister of State for Finance Minister Jayant Sinha said in Mumbai that the Centre is trying to resolve the issue. "We are working with the regulators as well as the banks and various other government agencies to ensure the matter with respect to the food stocks in Punjab is satisfactorily resolved."
"The issue raised by the Reserve Bank is correct from the standpoint of the regulator. Banks' explanation is also correct. We need to find a right solution for the issue."
Around 30 banks have a total exposure of Rs 40,000 crore to the Punjab government, which procures 40 per cent of the Rs 1-trillion worth of foodgrains annually on behalf of the FCI/Centre. Annual food credit is worth Rs 1 trillion.

The issue erupted after the RBI asked 30-odd lenders to set aside money as provisions for non-performing assets as foodgrain was found to be missing from the state godowns.
Banks are claiming loans to states are sovereign in nature and therefore no question of default and thus no need for provisions but RBI is not apparently ready to buy the argument.
However, the Punjab government denies the reports and has said all stocks procured over the years have been duly accounted for.