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Report: Indian central bank approves restructuring of 300B rupees of government loans

The Reserve Bank of India approved a proposal to restructurearound 300 billion Indian rupees of loans granted to state agencies in Punjab,India, for buying and storing food grains, Mintreported Oct. 10, citing "two bankers with direct knowledge of the development."

Under the proposal, a State Bank of India-led consortium of 68 banks willconvert the amount into a 20-year term loan at a lower rate of 8.25%. The loanswere initially given as cash credit limit that fetched higher interest rates.

The central bank, however, has not yet approved the banks'requests to write back provisions against the loans. The central bank had askedbanks in April to allocate 15% provisions in two installments against the loans,which were the difference in food stocks in Punjab warehouses and loans grantedin the past 10 years. At that time, the amount was said to have been 120billion rupees.

The move will be positive for the banking system as theywill start accruing income on these loans, but the restructure should not set aprecedent for other states in the future, said Karthik Srinivasan, senior vicepresident and co-head of sector ratings ICRA Ltd.

Spokespersons for the central bank and the State Bank ofIndia declined to comment, while emails sent to Punjab government officialswere unanswered, according to the report.

As of Oct. 7, US$1 wasequivalent to 66.58 Indian rupees.