Banks want co-op sugar mills to rightsize staff

Sugar mills that want to take a loan restructuring package from the banking sector or are already availing of one, might have to agree to pre-conditions like adherence to a certain financial discipline and adoption of better management practices.

These were some of the issues discussed at the first meeting of the committee on restructuring of loans provided to sugar industry held on Tuesday, presided over by National Bank for Agriculture and Rural Development (Nabard) chairperson Ranjana Kumar.

The need for "rightsizing" staff strengths of co-operative sugar mills through employee separation schemes was also discussed at the meeting. The adherence to financial discipline may also involve greater transparency including cash flows.

Kumar told the meeting that any approach to the ills of the sugar industry should be comprehensive, providing a total solution to their problems. Treating only the symptoms might provide a temporary relief and not a complete solution. The country has about 175 sick sugar mills, of which as many as 125 are in the co-operative sector.

Representatives of the country's top four public sector banks said that they have very limited loans for the co-operative sugar industry and that their exposures to private sector sugar mills are manageable.

Sugar industry is one of the largest agro-processing industry in India with an annual turnover of as much as Rs 20,000 crore and 450 lakh cultivators engaged in cane-growing.

State Bank of India, Bank of Baroda, Bank of India and Punjab National Bank officials said their stressed sugar industry loan portfolios are controllable and have been taken care of under the corporate debt restructuring (CDR) mechanism.

The committee will consider rescheduling of loans and reduction of interest rates from the current 12 to 16 per cent levels only in the case of sick sugar mills that are still commercially viable.

The key criterion for assessing the viability of a sugar mill is the feasibility of the unit solely on the basis of sugar production and not on consideration other activities like power generation and by-products like industrial alcohol and ethanol.

The committee has decided to focus on sugar mills in the five drought-affected states of Andhra Pradesh, Tamil Nadu, Bihar, Maharashtra and Karnataka, which together have a total of nearly 170 major co-operative sugar mills.

The 55-60 viable sugar mills in Maharashtra would be on the agenda when the committee meets again next week. Kumar said the restructuring packages will have to be separately defined for co-operative and private sector sugar mills.

The focus of the committee would be on the co-operative sugar sector and the state co-operative banks will have to bear the brunt of the restructuring.

Representatives of Karnataka and Tamil Nadu state co-operative banks said they would need to be given soft loans to be able to carry out loan rescheduling and for cutting interest rates.

The success of the financial restructuring of co-operative sugar mills will depend greatly on the strengths of the financing institutions, the NABARD chief said.