Delayed interest hurts sugar firms

Sugar mills are in a fix since the Union government has not disbursed the entire interest amount due to the banks under the Rs 4,000-crore interest-free loans granted in December 2007. Of the estimated Rs 1,000 crore interest liability (for the last two years), the government has only disbursed Rs 300 crore to banks a couple of weeks ago.

Consequently, banks have debited the interest amount from the account of mills and in some cases, restricted the drawing limit of the mills. Sugar industry claims that this will be a hurdle in payment of cane price to farmers, especially for smaller mills.

“The amount of Rs 300 crore released this month does not even meet one year of interest. Banks have restricted the drawing power of mills. While this does not affect the large companies, it is certainly creating a problem for smaller sugar mills. Mills also need to start repayment of principal amount from March next year,” said an official at the Indian Sugar Mills Association (ISMA).

While interest-free loan was announced when the industry was going through a rough patch, the situation has now reversed in the last one year with sugar prices touching record high and mills making handsome profits.

The interest-free loan was granted for a four-year period against excise payment of two years by industry in order to help it clear cane price arrears of 2006-07 and 2007-08 sugar seasons.

The sugar industry was unable to pay the arrears since it was making huge losses due to a record production leading to a glut. The interest subvention was limited to 12 per cent per annum, of which 5 per cent is to be met out of general Budget of the central government and the remaining 7 per cent from the Sugar Development Fund. Mills are supposed to begin repayment of loan in 24 monthly installments after the two-year moratorium.

State Bank of India, Punjab National Bank, Bank of Baroda, Canara Bank, Indian Bank were designated as nodal banks while Nabard was designated the nodal agency for cooperative banks and RRBs.

According to the scheme, the estimated amount of interest for each quarter should have been placed by the food ministry with the nodal banks at the beginning of the quarter on the basis of the indents placed by the lending banks.