Maharashtra State Cooperative Bank (MSCB) has come out with stringent norms to provide working capital loans to sugar mills in the state. MSCB has issued a circular saying it would not provide working capital loans to sugar mills with negative networth without a government guarantee. Owing to the strict norms, nearly 12 mills would fail to secure working capital of Rs 1,000 crore in the current year.
At the meeting chaired by chief minister Prithviraj Chavan, chief administrator S K Goyal clarified it would not be possible for MSCB to provide working capital loan to 12 ailing sugar mills with negative networth. He quoted past incidents when the bank did not insist on guarantees by the borrowing units before allowing operations on the sanctioned limit. This is despite MSCB’s condition that mills would provide unconditional government default guarantees.
State-run National Bank for Agriculture & Rural Develo-pment (Nabard), while referring to the stipulated norms, told the chief minister the organisation worked under the directive principles of the Reserve Bank of India. MSCB managing director P R Karnad told Business Standard, “We have made our position clear at the meeting chaired by the chief minister. The working capital loan for 12 sugar mills with negative networth would be possible only after the government gives a default guarantee. The government has said it would not be possible to provide such a guarantee. MSCB, Nabard and state government officials are working out a strategy to make working capital loans available to these mills.” He said MSCB had provided a total working capital loan of Rs 3,500 crore in 2010-11 and an equal amount was proposed for 2011-12. Karnad said MSCB, under administrators S K Goyal and Sudhir Srivastav, had appointed a financial controller, in addition to the bank resident officer, for sugar mills with negative networth.
He added Nabard had, in its inspection report for MSCB’s accounts for 2009-10, stated the bank did not ensure that the stock pledged to it was held in lock and key. Without insisting for submission of an unconditional government default guarantee for the working capital limits sanctioned to units with negative networth, a short margin in pledge accounts, and accumulated losses, the bank had accepted joint and several liability bonds of directors of the sugar mills as a substitute.