UP sugar mills run 'ponzi scheme' to pay farmers' dues

Nov 25 2013, 09:28 IST
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Sugar companies are party to mortgage arrangements of farmers land to raise money from PSU banks. (PTI) Sugar companies are party to mortgage arrangements of farmers land to raise money from PSU banks. (PTI)
SummaryBajaj Hindustan, the largest sugar company, refused to comment and Balrampur Chini denied it.

fact that banks have declined to provide higher working capital loans to the sugar industry this time around.

In a BSE filing earlier this week, the company said, Unviable, unaffordable and unreasonable sugarcane price has been continuously fixed over and above the paying capacity of the mills or above a level, which did not give a fair and reasonable return to the mills. This has already caused huge losses to us and has created an unavoidable situation, which is beyond our control to continue to run the operations in losses.

What makes the situation more precarious is that private sugar mills in UP already owe farmers nearly Rs 2,500 crore for the last season, and that is without factoring in any interest on delayed payments.

Most of the outstanding payments are generally taken care of by fresh loans. This year has been different as the crop is still standing and banks have clamped down on working capital loans. As a result, the payments are still pending, an industry insider said.

The big banks that fund crop loans to the sugar mills include Punjab National Bank, UCO Bank, Bank of India and the Oriental Bank of Commerce. When contacted, UCO Bank chairman Arun Kaul said, Banks enter into tripartite agreements with mills or sugar companies and farmers. This practice has evolved over time. Mills get committed cane from farmers. Farmers avoid the hassle of dealing with banks with mills acting as intermediaries. Banks deal with one company, which ensures repayment, instead of thousands of farmers.

Kaul said he was unaware that crop loans raised by mortgaging land of one set of farmers is used to repay another set of farmers. UCO Bank directly credits the farmers accounts, he said but did not rule out some mills indulging in wrong practices. There needs to be more transparency if instances like these are reported, he said.

The sugar industry association too is also aware of companies acting as intermediaries to facilitate crop loans for farmers. Abinash Verma, director general, Indian Sugar Mills Association, said, most companies are banks agents and help farmers with crop loans. If companies are doing this (mortgaging land of one set of farmers and paying dues of another set of farmers) it needs to be investigated.

In UP, over 60 out of the 101 private mills have so far informed the state authorities about suspension of crushing operations in the 2013-14 marketing

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