Finmin wants banks to start giving interest-free loans to sugar industry by Feb end

Feb 11 2014, 13:30 IST
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SummaryThe process of sanctioning loans will be over by June and the disbursal is expected to be completed by September this year.

The finance ministry expects banks to start sanctioning interest-free loans to bail out the cash-strapped sugar industry by February end, as applications keep coming, official and banking sources said on Monday.

The process of sanctioning loans will be over by June and the disbursal is expected to be completed by September this year, one of the sources told FE.

Sugar mills had submitted applications to obtain interest-free loans of around Rs 3,500 crore until last week from the Rs 6,600-crore bailout package approved by the Cabinet Committee On Economic Affairs (CCEA) in December.

Following mills' demand to hasten the process, the department of financial services (DFS) in the finance ministry on Friday convened a meeting of banks, including State Bank of India, Bank of India, Indian Overseas Bank, Andhra Bank, Bank of Maharashtra and Bank of Baroda. The DFS also sought details on the number of applications filed, whether the banks have refused loans to any of the millers and by when the process of sanctioning and disbursal is expected to be over, they added.

However, there has still not been any rethink on relaxing the eligibility criteria for availing of loans, as sought by the sugar industry, the sources said. The chief of a public sector bank, which is one of the main lenders to the sugar industry, said: "Only the applications found eligible as per the guidelines will be considered. We are following the guidelines strictly. This was emphasised at the recent meeting with the finance ministry."

Earlier this year, sugar mills, especially in Uttar Pradesh, had expressed their inability to clear cane arrears due to an unprecedented liquidity crunch stoked by a drastic mismatch between the prices of sugar and cane. So, in December, the CCEA decided to offer the interest-free loans and interest burden, estimated at Rs 2,750 crore over five years, will be borne by the Centre from the Sugar Development Fund. Mills will have to repay the loans in five years, with a moratorium on repayment in the first two years.

FE had reported last week that the DFS had written to the Indian Banks' Association saying 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 and conduct of loan, including the restructuring guidelines as notified by the Reserve Bank of India for the sugar industry from time to

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