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Thursday, Apr 01, 2004

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Most State PSUs miss SEBI deadline on bonds

C. Shivkumar

The outstanding State Government guaranteed bonds now amount to over Rs 2 lakh crore.

Bangalore , March 31

MOST State public sector undertakings have missed the deadline for complying with regulatory guidelines on listing of State Government guaranteed bonds.

The Securities Exchange Board of India (SEBI) had fixed March 31, 2004, as deadline for listing of all the privately placed securities. The RBI had also issued guidelines to all the banks in the public, private, and cooperative sectors to ensure that their non-SLR investments are listed. This included all the State Government guaranteed securities issued by the respective public sector utilities. However, current indications are that only three States have complied with the deadlines. The compliant States include, Gujarat, Andhra Pradesh and Karnataka.

The remaining States have so far not initiated steps to ensure compliance with the SEBI guidelines. What is interesting was that three States that complied, preferred to list only bond issues made by their respective special purpose vehicles for irrigation. None of the other borrowers, including power utilities or transport corporations, who have also raised funds through the private placements have listed their securities.

But neither the RBI nor the SEBI had specified penalties for failure to have the securities listed on the exchanges. However, banks have already been told to treat securities on the basis of the 90-day income recognition norm. As a result, if there were over dues beyond 90 days, the securities would have to be provisioned as non-performing investments, exactly on identical lines as non-performing assets. The provisioning burden on all the institutions is estimated at Rs 50,000 crore, if such bonds are treated as NPAs. Bankers said that the provisioning was likely to impact the balance sheets of the respective institutions.

The outstanding State Government guaranteed bonds now amount to over Rs 2 lakh crore. Public sector banks, public sector insurance companies, including the Life Insurance Corporation of India, financial institutions, cooperative banks, regional rural banks and provident funds, hold some of these securities. Few private sector banks or mutual funds have seldom subscribed to any of the State Government guaranteed securities.

Nevertheless, bankers said that there were large overdue payments from most of the States and their utilities. Most of them have already complained to the RBI on the large overdues and had sought recovery through netting from the Central transfers to States. None of the banks has so far invoked the State Government guarantees, nor treated the bonds as NPAs.

Banks fear that invoking the State Government guarantee in one case would lead to a ripple effect, and provoke a simultaneous recall of loans by all the lenders to the respective State or lead to treating the State as insolvent.

The major concern was that most of the States, which had raised such off budget funds had done so on the support unfunded guarantees. Such funds were utilised for funding deficits in the revenue expenditure instead of capital expenditure.

Some of the States had also sought a refinancing package of their issues to take advantage of the prevailing low interests in the markets. Banks, however, had insisted on settlement of over dues as one of the preconditions for such a refinancing package.

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