Relief to mills: MSC Bank to finance 24 sugar co-ops despite negative NDRs

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Published: December 24, 2019 1:15:35 AM

MSC Bank has sought permission to disbursing loans worth Rs 3,751 crore for mills as pledge loans or hypothecation loans.

msc bank, sugar industryDeshmukh said that the bank had already had verbal discussions with officials from Nabard and the bank officials have in principle agreed to the proposal sent by MSC Bank.

After initially denying loans to sugar millers, the Maharashtra State Cooperative Bank ( MSC) — the apex cooperative of the state — has decided to go ahead and finance 24 cooperative mills with pledge loans and hypothecation loans worth Rs 3,751 crore for the sugar season of 2019-20, top officials of the bank said.

The decision has been taken by MSC Bank in concurrence with Nabard, that has principally agreed to the policy decision taken by MSC Bank despite negative Net Disposable Resources (NDRs), MSC Bank managing director AR Deshmukh told FE.

MSC Bank served around 33 cooperative sugar mills of which six mills were shut due to both negative net worth and negative NDRs, he said. For the remaining 24 mills on its roll, the bank has sent a proposal to Nabard seeking permission to finance the mills since these have been the bank’s clients for a long time.

Seeking government guarantees will take a long time and the season of 2019-20 has already begun and it is important for these mills to get finance soon or they could face difficulties, Deshmukh pointed out.
MSC Bank has sought permission to disbursing loans worth Rs 3,751 crore for these mills as pledge loans or hypothecation loans.

These mills had worked with the bank for a long time and had been good clients, he said. Deshmukh said that the bank had already had verbal discussions with officials from Nabard and the bank officials have in principle agreed to the proposal sent by MSC Bank. Therefore, the bank had decided not to wait for the bank gaurantees and finance these mills, Deshmukh said.

Significantly, around 55 mills in Maharashtra have been finding it difficult to commence crushing in the sugar season of 2019-20 since they have been turned away by the MSC Bank and district cooperative banks because of negative net worth and negative Net Disposable Resources (NDRs).

At a recent meeting called by the Maharashtra sugar commissioner to review the financial position of mills, the MSC had stated that the sectoral exposure limit of the bank to the sugar sector had been exhausted and therefore the bank was not in a position to issue pre-seasonal loans to sugar mills.

These 55 mills can therefore approach other public sector banks for loans, Maharashtra sugar commissioner Shekhar Gaikwad said, adding that Nabard has also said that these mills cannot be funded unless the government guarantee is given.

Issues including seeking an increase in the sectoral exposure of Nabard to this sector, restructuring of the loans, government guarantee for mills with negative net worth or negative NDRs, revised guidelines by Nabard for the season, NOCs from the government for those factories that have been set up on government land for loans, permission from Nabard for mills with negative NDRs were some of the issues discussed at the meet.

Earlier this year, the Maharashtra State Cooperative Sugar Factories Federation had sought clarity in guidelines from the RBI and National Bank for Agriculture and Rural Development (Nabard) for the utilisation of the Centre’s scheme for a soft loan of Rs 10,540 crore. The Centre had announced a soft loan of Rs 10,540 crore for the payment of Fair and Remunerative Price (FRP) in the sugar season of 2019-2020.

Sanjay Khatal, MD of the federation, had highlighted the exhaustion of the sectoral exposure of banks for sugar industry, adding that there had been exhaustion of the unit exposure limit of individual mills as well.

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