Due to poor servicing of the bonds, we have sought RBIs intervention to put pressure on the parties to keep up the commitment. We dont want to invoke the guarantee given by the states as it may hamper our other businesses with them, said treasury head of a public sector bank.
The Indian Banks Association (IBA) has also studied the matter and submitted its report to the RBI a month ago detailing the possible action plans by the central bank.
Senior banking sources point out that some of the banks have even prepared restructuring plans with the state government undertakings giving them many facilities to return their due. But the borrowers are not accepting them.
Also for the few states like Madhya Pradesh, Uttar Pradesh which got bifurcated some years ago a political issue has come in the way for settling the banks' dues.
The orginal states which had guranteed their undertakings loan are now passing the responsbility to the new states,'' said the sources.
Though the issue of deafaults by the state government undertakings are not entirely new developments, the tightening of the non-performing asset (NPA) norms in the past two- three years for banks that had significant exposure for the state corporation bonds has started hitting their balance sheet in the days of high competition. The banks are now required to provide for provisions if the servicing of bonds is not happening.
The interest rate on these bonds when they were issued was as high as 13%-14% and hence high rate of interest is also one of the issues in servicing the bonds by state government undertakings.