Banks to chip in for tea fund

Commercial banks will provide Rs 1,080 crore line of credit to create Rs 4,761 crore tea fund being set up by the Tea Board.

The Special Purpose Tea Fund (SPTF) has been proposed for long-term development of the tea industry through re-plantation and rejuvenation of old tea bushes.

The Indian Banks' Association (IBA) examined the proposal and conveyed its views to the government stating that the quantum of fund to be raised from the banking system in tranches was a "workable proposition" and the scheme could be implemented.

The banking division of the ministry of finance had sought the views of the IBA on the SPTF proposal.

The Tea Board has been assigned the responsibility to work out the modalities for setting up the SPTF.

The major agencies who will be contributing to the fund are the Tea Board and the central government, borrowing from banks through lines of credit, subsidies payable to tea gardens by the central government and contribution from tea growers.

Of the total fund, banks and financial institutions would contribute Rs 1,080 crore as line of credit. The remaining funding needs will be through borrowings by SPTF, which would not exceed 50 per cent of the total cost of the re-plantation programme.

Banks would be approached to sanction lines of credit initially for the next three years' requirement at a time, as banks cannot commit funds for period exceeding three years.

The proposed borrowing during the next three years would be Rs 457 crore at the rate of Rs 159 crore per annum. The rate of interest on funds provided by banks would be 1 per cent above the prevailing yield on comparable government securities.

The tenure for the borrowing would be 13 years with a moratorium of five years. The repayment would commence from the sixth year and would be repaid in eight installments.

The borrowers from the fund would have to commit to route 200 per cent of their annual debt liability through tea auctions.

The sale proceeds would be routed by their brokers direct into a trust and a retention account for repayment to the lenders to the fund. The remaining amount would be remitted to the borrowers.