According to industry sources, Tea Board, at its recent board meeting, discussed this issue and informed its members that the procedure for processing loans has been examined by the Indian Institute of Plantation Management (IIPM), Bangalore. The IIPM has suggested a host of changes for assessment of the working result prior to the grant of loan.

"Since the recommendations made by IIPM were in accordance with the financial norms, these have been accepted by the Tea Development Directorate", sources added.

The main deviation in the new procedure is that for the assessment of the operating profit, income prior to tax plus depreciation would be taken into account besides the incremental income flow due to irrigation.

It may be noted here that the plantation development scheme provides for advancement ofloan for activities such as extension planting, replanting, replacement planting, apart for procurement of irrigation equipment.

Giving details on the existing practice, sources informed that currently, prior to sanction of the loan, the working result of the borrowers tea company is assessed, for which the audited balance sheet of the company for the immediate past five years is taken into consideration. Moreover, the average profit earned during the last five years is compared with the annual repayment of the board dues.

If the working capital is sufficient to cover liabilities, the loan would be sanctioned. If otherwise, the borrower company is asked to confirm as to how the liability would be met and also if the borrower would be in a position to provide corporate guarantee of its sister concern, having sufficient profit and is in a position to take care of the liability of the borrower.

As against this, IIPM has observed that the operating income measured as profit before tax plus depreciation is ameasure of the actual income generating capacity of the enterprise. Considering the fact that depreciation is a non cash expenditure and therefore by adding depreciation, the actual earning levels can be determined.

Secondly, it is suggested that as a measure of caution, the working capital management of the estates needs to be analysed at least in terms of two ratios, like the current ratio (current assets : current liabilities) and the liquidity ratio (current assets-inventories : current liabilities). The standard norms for these ratios are 2:1 and 1:1 respectively.

However, IIPM has suggested that it is possible to have a lower current ratio if the industry norms to be calculated indicated a lower ratio, as against the standard norm for this ratio at 2:1. But in any possibility the liquidity ratio must be maintained at 1:1, feels IIPM.

In addition to this, it is suggested that the Development Directorate may also calculate the debt servicing capacity of the estates. This is measured in terms ofoperating income divided by annual interest plus installment of the principal, if any, during the current financial year. For the irrigation loan scheme, it is suggested that the incremental flows may be considered for future years based on field data. It may be mentioned here that during the current year, the industry had suffered a great deal of crops loss mainly due to drought during the current year especially in north Bengal and Assam.

This has resulted in a setback in achieving production targets set for the current financial year, after achieving an all time high record production during the last two years in succession.

It was therefore proposed that in order to encourage the tea gardens to fully explore the possibility of utilising the available water resources for irrigation and tide over the adverse effects of drought in the ensuing season as well as coming years, the existing procedure for processing the loan applications should be suitably modified.

This, it was felt, would facilitateaccommodating all the tea gardens having the potential for taking up irrigation under the loan scheme of the board.