NEARLY two months after the Sharad Pawar-led panel recommended interest-free loans to bail out the cash-starved sugar industry and more than a month after the Cabinet Committee on Economic Affairs (CCEA) approved a Rs 6,600-crore package for this purpose, not a single mill has been sanctioned any amount yet.
Worse, sources told FE that the department of financial services (DFS) has turned down the mills’ demand for relaxing some of the “rigid” eligibility conditions for banks to start disbursing fresh loans to the industry. Sources say more than half of the 600-odd cash-strapped mills which must clear cane arrears won’t qualify for interest-free loan under current norms. Unless the stalemate is resolved, the crisis in the industry — hit by high cane prices and subdued realisation from sugar sales — could aggravate, further eroding mills’ ability to pay farmers for raw material purchases.
Cane arrears in Uttar Pradesh alone could hit R7,000 crore by January end, including last year’s arrears, defeating the very purpose for which interest-free loans were approved.
Mills in Uttar Pradesh were expected to get Rs 1,600-1,700 crore out of the interest-free loan package.
According to the DFS modalities, lending will be subject to various norms relating to security, future cash flows for the life of loan (five years), establishing the viability and debt servicing capacity, conduct of loan including the restructuring guidelines as notified by the Reserve Bank Of India for the sugar industry from time to time. Mills whose loan accounts have turned NPA are also covered under the scheme provided the state government concerned gives its guarantee for their new loans.
Moreover, loans will have to be backed by the existing security and collaterals of the sugar industry availing of the loan, including other assets of promoters, which are free from encumbrances, to be decided by the individual banks.
In a letter to the Indian Banks’ Association on Monday, the DFS has rejected demand by the Indian Sugar Mills’ Association (ISMA) to reconsider these conditions, reinforcing fears of higher cane arrears and eventual closure of stressed mills.
The department said in the letter: “In view of the extant guidelines of RBI, all the lending banks will have to satisfy themselves with the sugar mills’ capacity to service the debt as per the individual bank’s loan policy.” It added: “The loans proposed to be sanctioned to the sugar mills will be as a working capital loan and, therefore,