Rate-free loans to sugar mills stalled

Lack of clear guidelines by RBI delays sum of Rs 3,900 crore under the scheme.

The disbursal of interest-free loans to sugar mills against excise payments is getting delayed owing to the lack of clear guidelines from the Reserve Bank of India (RBI) to banks.

The government had notified the loan scheme on December 7. But, so far, only one mill has received the loan. Collectively, the country's sugar mills are expected to get loans worth Rs 3,900 crore under the scheme.

As a result, huge sugarcane arrears to farmers, especially in Uttar Pradesh, have not been paid. The sugar mills still owe over Rs 800 crore to UP growers for the cane they bought in the 2006-07 season (October-September). Further, arrears for the current season are expected to pile up soon.

"The Reserve Bank has left the whole scheme to the discretion of banks and owing to the lack of clear-cut guidelines, the whole process is being delayed. This defeats the purpose of timely payment of sugarcane arrears for which the scheme was announced," said Sanjay Tapriya, director (Finance), Simbhaoli Sugars.

In a written communication to RBI and the National Bank for Agriculture and Rural Development (Nabard) on December 13, the finance ministry requested them to issue instructions to banks to make the loan scheme operational, which has been already notified by the government.

However, RBI in a January 7 circular to the Indian Banks' Association suggested that "banks may subject to their own discretion, commercial judgement and board-approved lending policies and extend loans under the scheme". Consequently, there is a lot of procedural delay by the banks in disbursing the loans.

The money from these loans are to be used for clearing the 2006-07 sugarcane arrears and making payments for the 2007-08 season. The sugar companies of UP, including large players such as Bajaj Hindusthan, Balrampur Chini and Triveni Engineering, have assured in writing to the state government that they would clear the previous season's arrears once they get the loans.