Rbi Fiat On Sugar Co-Op Loans

The Reserve Bank of India (RBI) today asked the Maharashtra government to pursue with other banks and financial institutions the Rs 250-350 crore required by co-operative sugar factories (CSFs) as pre-seasonal loans.

If the Maharashtra State Co-operative Bank (MSCB) funds this sum, it would increase it's exposure to CSFs way above the permitted 40 per cent level stipulated by the RBI.

Currently, MSCB's exposure level is pegged at around 60-62 per cent, RBI and Nabard officials told state government officials.

The government, however, persisted with its plea for the pre-seasonal loans required by CSFs for carrying out small repairs and effecting advance payments to cane cutters and transporters. The pre-seasonal loan is a short term clean loan advanced by the MSCB to CSFs repayable by the end of the sugar season.

 

The RBI pointed out that already the exposure of MSCB had reached alarming proportions and with an additional burden of the pre-seasonal loan this was likely to reach 75 per cent.

A senior official who attended the meeting said: "The RBI officials emphasised that it would not be fair to overburden MSCB by raising its exposure to CSFs in violation of the RBI directives. A state government guarantee for a part of the required funds (since a clean loan is not guaranteed by the state) while also pursuing with some other commercial, urban and nationalised banks and financial institutions for a major portion of the sum would be a possible route to explore, according to the bank officials present at the meeting."

The meeting also witnessed disagreement on the total amount of funds that would be required as pre-seasonal loans. While a section felt that it would be around Rs 250 crore, the bankers present expressed the opinion that with 75 to 80 per cent of the 116 CSFs in the state generally availing of the loan, Rs 350 crore would be a more accurate figure.

The RBI's reluctance stems from the fact that in many instances loans are availed by CSFs without even having viable operations. The state government's stand that even if the sugar factory was not viable but ample cane was available in its immediate region of location some assistance needed to be given to these factories did not cut ice with the RBI.

Another problem pointed out by RBI officials at the meeting relates to the pledge loans that are given to CSFs on the hypothecation of future sugar stocks with the factories.

"With already a lot of sugar stocks lying hypothecated with the banks, pledging future stocks also in this manner would further increase the exposure limit of MSCB which would exceed even 100 per cent above the stipulated 40 per cent exposure limit," the official said.