RBI approves ₹30,000 crore proposal to Punjab for the Food credit loan

RBI Loan to Punjab

The Rs 30,000-crore amount is the mismatch between food stocks available in Punjab warehouses and loans granted over the past decade. The Reserve Bank of India (RBI) has approved a proposal to restructure around Rs30,000 crore of food credit given to Punjab state agencies.

According to the proposal, a State Bank of India-led (SBI-led) consortium of 68 banks will convert the cash credit limit worth Rs30,000 crore into a 20-year term loan at a lower interest rate of 8.25%. Cash credit is a short-term cash loan to a company and typically attracts higher interest rates.

Spokespeople for RBI and SBI declined to comment. Emails sent to Punjab government officials were unanswered.

However, the central bank has not yet agreed to the banks’ request to write back provisions made against their exposure to the Punjab state procurement agencies. In April, RBI had first asked banks to set aside 15% provisions in two instalments against these missing stocks, which was calculated at Rs12,000 crore at that time.

While SBI, the country’s largest lender, leads in disbursing food credit, RBI assesses the quantum of credit to be disbursed in each season and the limit for each bank.

Earlier, FCI, which buys food grains, used to pay the agencies which then repaid their dues. However, from 2014, FCI directly credits the banks for the food grain it purchases against the Punjab government’s line of credit.

Food credit is disbursed by banks to the Food Corporation of India (FCI) and various state government agencies for buying, stocking and distributing food grains. At the end of June, outstanding food credit was about Rs1 trillion, a fraction of the Rs72.9 trillion bank loans. Punjab, the grain bowl of India, has the single highest share among states in food credit.

It comes at a time when the Basel Committee on Banking Supervision is asking whether sovereign risk is truly risk-free and debating changes to the global regulatory framework by increasing the capital requirement on sovereign bonds. “This is a very live issue with standard-setting bodies. Even if a low 2% and 5% risk weight respectively on the bank holdings of central and state government securities is assumed, the banking system may be required to hold around Rs6,000 crore of capital on this count alone,” RBI deputy governor S.S. Mundra said at the SBI Banking & Economic Conclave on 30 September.