The Government of Punjab has asked the State Bank of India(SBI)-led consortium of banks to treat their outstanding loan of Rs 21,000 crore as a “soft loan”, with an assurance to repay it in installments.
The SBI-led consortium of banks lends Punjab government a cash credit limit (CCL) on every harvest for foodgrain procurement.
On Monday, the Reserve Bank of India had separately approved the release of Rs 26,000 crore CCL for paddy procurement in Punjab, which commences in less than a week on October 1.
In April, during the wheat procurement season, there was a standoff between the banks and the state over the unpaid debt, and the huge discrepancy between food grain procured on behalf of the Union government and the stock in the FCI godowns.
It led the RBI to direct banks for treating aside 15 per cent of this missing stock as wastage. Despite this the stocks available in Punjab godowns were inadequate to cover the debt.
The banks at first refused to advance a CCL for wheat procurement, creating a crisis at the mandis. Eventually, the RBI stepped in to resolve the matter and Punjab was extended a CCL Rs 16,000 crore.
But keeping the issue of previous debt unresolved, the Punjab government had now asked for a debt restructuring. It may be noted that banks usually use this method to set up new repayment schedules for defaulters.
The state’s proposal for this reason has made the banks nervous.
In the light of Punjab’s precarious financial situation, an official said it was risky for banks to take this route. Moreover, it would set a precedent and all other states would want similar treatment.