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Tamal Bandyopadhyay & Anirban Nag
Mumbai, Sept 17: The State Bank of India (SBI) has dragged the West Bengal government to court for the West Bengal State Electricity Board's (WBSEB) failure in clearing bank dues in time. The state government, according to sources, had not renewed the guarantee which was originally offered to back the account. Consequently, the bank had no option but to move the court in order to keep the guarantee alive.
Sources in the State Bank have confirmed the development but refused to give details of the case. "The case has been filed as the state government is the principal debtor (WBSEB is a state government undertaking).
The board has been clearing its dues - albeit slowly- and has shown no intention to dishonour its commitment," a source close to the bank said.Senior bankers said the SBI action may trigger a similar move by other public sector banks in regard to all government guaranteed accounts. "Bank of Baroda and another heavy-weight public sector bank have recently moved court against certain stategovernments. There will be more and more instances of banks invoking the government guarantee," a senior bank executive said.
The action assumes significance in the context of the Second Narasimham Committee recommendation which said "in the case of all future loans, the income recognition, asset classification and provisioning norms should apply even to government guaranteed advances in the same manner as for any other advance". According to the panel, all prospective government guaranteed advances should be treated on a par with other advances. "For existing government guaranteed advances, the RBI, government and banks may work out a mechanism for a phased rectification of the irregularities in these accounts," it said.
The SBI's exposure to central government guaranteed accounts is to the tune of Rs 1,200 crore. Its exposure to state government guaranteed accounts is worth Rs 1,600 crore and the bank has invoked about 25 per cent of state government guarantees.
Going by the published data, till March1998 the public sector banking industry invoked state government guarantees on advances worth Rs 251.52 crore. The state governments made payment to the tune of Rs 40.16 crore as against Rs 1,340 crore worth of guarantees provided by them for the period ended March 31, 1998.
Out of the total guarantee invoked to the tune of Rs 251.52 crore, the government of Tripura has not been able to service guarantees worth Rs 60.70 crore out of the total guaranteed amount of Rs 58.92 crore followed by West Bengal government which was not able to pay Rs 48.55 crore against the state government guarantee to the tune of Rs 77.39 crore as against the advance outstanding of Rs 143.19 crore during the period. Incidentally, the RBI has expressed serious concern over the prevailing practice of state governments' offering "excessive counter-guarantees" to public financial sector.
According to the central bank, these guarantees could be discouraging proper credit risk assessment by financial institutions involving a moralhazard problem.
"Excessive counter-guarantees by governments to public financial sector, especially to enterprises which are not viable, could raise concern due to its potential adverse implications for the financial sector balance," the RBI annual report (1998-1999) said. The outstanding state governments guarantees shot up from Rs 40,159 crore in March 1992 to Rs 79,625 crore to September 1998.
The RBI has mooted the idea of setting up a guarantee fund out of the proceeds of guarantee fees charged by the states to various public sector organisations. The central bank is also planning to put a ceiling on state government guarantees.
INSIGHT:
Hurdles in financing IPPs
The Technical Committee on State Government Guarantees had pointed out that the annual growth rate in state govt guarantees has been 13.1 per cent between March 1995 and September 1998. This is unsustainable. Clearly, given the condition of state electricity board finances, there will be many instances of stategovernments backing out of their guarantees. Not only will banks be affected but also Independent Power Producers, many of whom have insisted on state govt guarantees for payments due from state electricity boards. Under these circumstances it will be difficult to find financiers for IPPs, especially when the escrow mechanism is also in difficulties.
-- Urmik Chhaya
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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