Sugar fund loans to get cheaper

The government has decided to rationalise the interest rates on loans given to sugar mills from the sugar development fund (SDF).

Interest rates will be revised in tandem with prevailing market rates with the concessional nature of SDF loans being retained intact.

The new rate regime would be applicable to all existing loans which are still to be serviced fully.

Under the new regime, interest rates will be raised or lowered in accordance with the changes in the interest rates prevailing in the market. SDF rates will at all times be kept two percentage points lower than the bank rate to help industry.

The bulk of SDF loans taken by the mills in the past decade have been at an interest rate of nine per cent a year.

Market rates have dropped considerably in the meanwhile. These loans would now bear interest at the rates prescribed by the government for new loans.

According to food secretary S K Tuteja, caution would be observed while granting loans from SDF to ensure that companies with negative networth did not get them.

Appraising agencies could be involved in this process.

However, state governments would have to depend on borrowings from the open market for sugarcane development funds.

The Centre would reimbursement states only the interest paid by them above four per cent.

SDF would not be used for funding voluntary retirement schemes of sugar mills, which would have to raise funds themselves for this purpose from the commercial banks, Tuteja said.

SDF was set up in 1982 under an Act of Parliament to finance development projects in the sugar industry.

The fund's corpus was raised from the proceeds of a cess on sugar production levied under the sugar cess Act of 1982.

Initially, the fund was used only to facilitate rehabilitation and modernisation of sugar factories and development of sugarcane.

Its scope was later expanded to financing projects for production of power and alcohol by sugar mills as by-products by amending the Act in 2002.

Till March last, about Rs 3006 crore was collected undeer SDF. Of this, about Rs 1252.39 crore was disbursed for 244 modernisation and rehabilitation projects.

Another Rs 475 crore was disbursed for cane development through 669 projects. Only one loan of Rs 10.6 crore was sanctioned for setting up of bagasse-based power generation plant.