Subsidised loans of Rs 600 cr may not reach sugar mills

Written by Banikinkar Pattanayak | Arun S | New Delhi | Updated: Jul 8 2014, 05:43am hrs
As much as Rs 600 crore of subsidised loans of the Rs 6,600-crore package announced by the government in December, to enable cash-starved sugar mills to clear cane arrears, won't reach them, as many applications failed to meet stringent eligibility criteria set by lenders, official and industry sources said on Monday.

While the deadline for sanctioning loans at up to 12% interest subsidy expired on June 30, banks are directed to complete the disbursal process by September.

This has reinforced apprehension that even if the Centre notifies its latest decision to provide additional subsidised loans of R4,400 crore, a chunk of that may not reach the mills. Food minister Ram Vilas Paswan said last month the government would provide the additional package only if the industry gave a guarantee that it would clear all cane arrears, which had hit R13,000 crore last month.

Of the sanctioned amount, banks have already disbursed R5,200 crore to mills. The subsidised loans are to be used exclusively for paying cane dues to farmers. As many as 400 mills applied for the loans until June 30, banking industry sources told FE. They said currently there are no plans to extend this deadline.

Industry sources said many sugar mills, which were actually in need of money, didn't get the loans, while some other mills with relatively better financial positions got the succour, as the finance ministry didn't impress upon banks to ease their lending criteria.

In January, the department of financial services had written to the Indian Banks' Association, saying lending would be subject to norms relating to security, future cash flows for the life of loan (five years), establishing the viability and debt servicing capacity and conduct of loan, including the restructuring guidelines as notified by the RBI for the sugar industry from time to time.

Moreover, mills whose loan accounts have turned into non-performing assets (NPA) are also covered under the scheme, provided the state government concerned gives its guarantee for their new loans. Millers had sought a relaxation, saying that if they were so financially sound as to meet the tough norms, they wouldn't have approached the government for a bail-out package.

Sources said no state government offered guarantee for mills whose accounts turned into NPAs, including Mawana Sugars which last year approached the Board for Industrial and Financial Reconstruction for a package. This resulted in the rejection of loan applications of certain mills.