Maharashtra to give guarantees for pre-seasonal loans to 18 sugar co-ops

Eighteen co-operative sugar mills, despite a negative net worth, will now be entitled to a pre-seasonal loan of Rs 146.83 crore, due to a guarantee provided by the state government. These mills would be able to participate in the ensuing crushing season, beginning October 1. The government guarantee was a must, according to the norms fixed by the National Bank for Agriculture & Rural Development (Nabard)for grant of pre-seasonal loans to be disbursed by the cooperative banks in the state. The state cabinet at its meeting on Wednesday, chaired by Chief Minister Prithviraj Chavan, gave its approval.

A senior minister, who did not want to be identified, told Business Standard: “The cabinet decided to provide its consent for government guarantee to bail out 18 mills who had participated in the crushing season 2010-11, but would fail to do so in season 2011-12, due to non-availability of pre seasonal. The Maharashtra State Cooperative Bank (MSCB) will disburse Rs 71.85 crore to eight mills while the balance 10 mills will get Rs 118.95 crore from the district central cooperative banks (DCCBs).”

The minister said that Maharashtra was expected to have a record sugar production of 9.3 million tonnes (mt) due to at least five per cent rise in availability in 2011-12 season. During the approaching season,the mills would have to crush 82.5 mt of sugarcane compared to 80.3 mt in 2010-11.

The minister said, 168 mills comprising 121 cooperative and 47 private ones, are expected to participate in the crushing season of 2011-12. “The 18 mills entitled for a pre-seasonal loan are part of 121 cooperative mills. However, these mills will have to strictly adhere to the loan norms of MSCB and create a separate fund to face any crisis arising out of volatility in the sugar prices,” the minister added.

As reported earlier, about Rs 1,000 crore of pre-seasonal loan is expected to be disbursed, comprising Rs 400 crore by MSCB and Rs 600 crore by DCCBs to 110 mills.

The government’s move comes at a time when Nabard is expected to give its inspection report for the 2010-11 balance sheet of the MSCB, whose board of directors was superseded by the state government on May 7 for procedural lapses. It was on the basis of Nabard’s inspection report for 2009-10 that RBI had recommendeded to the state government that the full 44-member board of directors of MSCB be superseded.

Nabard in its inspection report had observed that MSCB had sanctioned loans to cooperative sugar mills having negative networth, short margin on pledge accounts and accumulated losses. Further, the MSCB had not monitored the end use of the amount drawn. It had allowed the cooperative mills to divert the withdrawals for making payment for cane during crushing season at rates above net statutory minimum price without waiting for finalisation of accounts.