Nabard report moots 2-year moratorium on sugar package

The National Bank for Agriculture and Rural Development (Nabard) has submitted its recommendations to the central government on reviatalising sugar factories.

Nabard, in consultation with the state governments, Reserve Bank of India, banks and financial institutions, has worked out a scheme for providing a financial package with a moratorium of two years and a schedule of payment making each unit commercial viable.

It may be recalled that finance minister P Chidambaram, in his Budget for the year 2005-06, had asked Indian Banks' Association (IBA) and Nabard to work out a scheme under which sugar factories could re-negotiate high interests on their past loans.

Meanwhile, Nabard has recommended the state governments not to participate in equity share holding of sugar factories any more. However, the state governments has been asked not to discourage promoters to set up sugar factories on their own. Nabard has also been allowed to seek assistance from the central government for funds if necessary.

Ranjana Kumar, chairperson, Nabard, who was recently on a visit to Ahmedabad, said, "We have put lot of conditions for refinancing through bank such as greater transparency in transactions and better professionalism in operations. Sugar factories will also not be allowed to expand their manufacturing capacities without the prior approval of Nabard. We are setting up monitoring committees to review the performances of factories at macro-level to be headed by Nabard and micro-level to be monitored by banks that will finance. Sugar factories' operators will have to showcase discipline in their conduct to survive."

It may be mentioned here that the sugar industry has been under financial stress since the year 2001. Moreover, the position of the factories had became worse due to two successive droughts in certain parts of the country in the recent past.

The central government had assigned the responsibility to Nabard following the report submitted by Tuteja Committee appointed by the government.

According to Nabard, sugar factories, which are not performing well are not eligible for the revival plan and should be shut down, while the loans should be extended to the factories which have potential for a turnaround. Nabard is shown willing to finance sugar factories for maximum 15 years depending on the creditworthiness of the company.

"We have classified sugar factories in three categories on the basis of their financial and future outlook. We have proposed range of actions to be taken on credit side ranging from refinancing to winding up those factories, which have no possibilities of revival. We have submitted our recommendations and proposals for sugar factories operational during the financial year 2002-03, both operated by the private sector and co-operatives, to the central government last week, " said Kumar.

It was also learnt that ailing sugar factories will have to repay their outstanding before paying dividend to the shareholders.