Maharashtra cooperative mills seek release of pledged sugar held with PSBs

Indian mills expect sudden spike in global sugar prices to persist due to drought in Brazil, giving India a fair chance to achieve 5 million tonnes of sugar export quota this year

Co-operative sugar mills in Maharashtra have written to Finance Minister Arun Jaitley seeking his intervention for the release of collateral sugar held with the public sector banks (PSBs).

The move is aimed to boost exports from the state which were stuck due to the difference in subsidy payment. While banks, including PSB, state central co-operative banks and district central co-operative banks have sought the price differential between the current realisation and free on board (FOB) price of Rs 11 a kg, which is equivalent to the subsidy amount, mills want lenders to release the collateral to boost exports and also want the subsidy amount to be collected from the government at the end of the season.

The tussle between the mills and banks continued until last week, when state central co-operative lenders agreed to sanction additional loan to collect subsidy amount from banks. District central banks and PSBs continued to seek subsidy amount from mills for releasing the sugar quantity held as collateral.

"We have written to the Finance Ministry urging it to issue a guidance to the Reserve Bank of India (RBI) which may instruct the PSBs to adopt the same model as state co-operative banks. We have also approached district central co-operative banks seeking release of the pledged sugar to boost exports," said Sanjay Khatal, Managing Director, Maharashtra State Co-operative Sugar Factories Federation.

Informed sources said that the state co-operative banks have agreed to release additional credit to sugar factories at 14 per cent interest for a one-year repayment tenure. This will help mills bridge the price differential of Rs 11 a kg for increasing exports.

Once district o-operative banks adopt the guidelines of state co-operative banks, the problems of some 102 mills will be resolved, and they will cumulatively be able to export another 900,000 tonnes. Thus, problems continue to persist with 84 sugar mills, of which many could have pledged their inventory with PSBs.

"This will raise financial burden of sugar mills without doubt. But they don't have any other option," said Khatal.

Owing to lower credit availability from banks, sugar exports from Maharashtra were under tremendous pressure. Informed sources said sugar factories in the state have shipped only 184,000 tonnes of the commodity so far this season, out of the total allocated quantity of 1.5 million tonnes under the Minimum Indicative Export Quota (MIEQ).

So far, sugar pledged with banks was regarded as dead inventory. Co-operative mills under the aegis of Maharashtra State Co-operative Sugar Factories Federation, held a series of meetings with the state and central governments, National Bank for Agriculture and Rural Development (Nabard), Reserve Bank of India (RBI) and others, seeking release of pledged quantity of sugar.

Meanwhile, industry experts say PSBs contribute very little to the entire credit to sugar mills.

"PSBs' release of additional quantity of sugar would certainly help boost its exports from Maharashtra," said Praful Vithalani, Chairman, All India Sugar Trade Association (AISTA).

Indian mills expect the sudden spike in global sugar prices to persist due to drought in Brazil, one of the largest producers. Hence, India would have a fair chance to achieve 5 million tonnes of sugar export quota this year.

• Co-operative sugar factories write to FM seeking release of pledged sugar from PSBs
• State co-operative banks agree to allot additional credit to factories to bridge price differential
• With this mills be able to achieve 0.9 million tonnes of MIEQ quota exports
• Problems persist with 0.6 million tonnes of MIEQ quota
• Sudden rise in global sugar prices offer opportunity for sugar mills to boost shipment