FM's bonanza for tea sector

The Madhukar Committee on problems in tea industry which met on January 12 to review the implementation of its recommendations by banks has rewarded the tea industry with the finance minister's mini-budget bonanza.

The banks agreed to convert working capital loans into long term debt of 10 years at 9 per cent interest.

The banks have agreed to reduce interest rates overall to 11 per cent and kept an open mind on further loan conversions, industry sources said.

The Indian Bank's Association had urged the committee to review its recommendations as the tea sector was doing badly on account of external factors.

The tea industry asked for nine per cent interest rate and around Rs 600 crore of loan conversion.

The working group on problems in tea industry under the chairmanship of Madhukar had recommended a eight-pronged strategy along with soft interest rates to boost the sector, as it was one of the largest agro based sectors in the country.

The group had recommended that banks should encourage tea companies to convert their existing working capital for the current year to term loans if the tea unit was not in a position to service its existing working capital loan.

The units should also be issued fresh working capital for the next fiscal so that production at the units is not hampered.

Units which required funds to expand plantations can look to switch from working capital loans to extended term loan. The repayment for these loans can be fixed on the cashflow position of the units.

The group had also urged the state government to allow the National Bank for Rural & Agricultural Development (Nabard) to provide funds from the Rural Infrastructure Development Fund (RIDF) for financing infrastructure development requirement for tea gardens thus reducing their burden.

Madhukar has also recommended the banks to reschedule existing terms loans availed by the tea manufacturing units.

The working group has also asked the Tea Board to provide 25 per cent capital subsidy for capital created in the last three years where borrowers have not arranged for full tie-up.

This should also be coupled with one per cent of old tea plantation being replaced by new ones.

The Group has also put the onus of moral responsibility on various tea associations to see that the units are in good health. There should be a forum in every association where the health of every member have to be discussed.

All tea units with loans accounts were asked by the Group to file un-audited financial results for every quarter to the banks.

This scheme was initially scheduled to be be reviewed after three years, but with the expected results not showing, IBA had expressed their intention of providing more sops to the sector.