CCEA okays norms for sugar mills to get interest-free loans

New Delhi, Dec 26. Government today approved modalities for the beleaguered sugar industry to avail interest-free loans to the tune of Rs 6,600 crore from banks for effecting timely payment to cane growers. A week back, the Cabinet Committee on Economic Affairs (CCEA) had given an in-principal approval for providing interest-free loans to cash-starved sugar mills and asked the Food Ministry to finalise the guidelines. "In today's meeting, the CCEA approved the modalities for extending interest-free loans to the sugar industry," Food Minister K V Thomas told reporters after the meeting. The entire interest burden on a loan of about Rs 6,600 crore, estimated at Rs 2,750 crore over the next five years, will be borne by the government from the Sugar Development Fund (SDF), he said. The loan would be disbursed through a separate bank account to ensure the utilisation of money is monitored. The Finance Ministry will issue necessary instructions to banks to operationalise the lending process, including appointment of nodal bank for the purpose, he said. As per the guidelines approved by the CCEA, the loans will be provided by banks to sugar mills exclusively for making payments to sugarcane farmers, including arrears. The loans would be equivalent to the excise duty, cess and surcharge on sugar paid by the mills in the past three years. Mills have to repay the loans in five years and can avail of a moratorium on repayment for the first two years. "No interest subvention (is) to be provided for the period of default in the principal repayments," an official statement said. Loans will be given to sugar mills, which have been functional during the 2013-14 season (October-September). Sugar mills with loans classified as Non Performing Assets (NPA) by the banks will also be eligible for the credit provided the concerned state governments give guarantee for their new loans. All loans which are sanctioned by June 30, 2014 and disbursed by September 30, 2014 by the lending banks, pursuant to this notification, would also be covered under interest subvention facility, the Minister said. The lending will be subject to various norms relating to scrutiny, future cash flows of five years, establishing the viability and debt servicing capacity and conduct of loan including the restructuring guidelines as notified by RBI for sugar industry from time to time. The loans will be backed by security and collateral of the concerned sugar industry availing it, including personal guarantees and other assets of promoters which are free from encumbrances, to be decided by the individual banks. The Rs 80,000-crore sugar industry has been facing a cash crunch due to higher cost of production and lower selling prices in the wake of surplus output over the past few years. Providing interest-free loans to sugar mills was one of the recommendations of the informal group of ministers, which was set up by the Prime Minister under the chairmanship of Agriculture Minister Sharad Pawar to address the industry's cash crunch. Other recommendations that are yet to be considered include the recasting of loans taken by mills, sops to produce 4 million tonnes of raw sugar, setting up a buffer stock and doubling of ethanol blending in petrol to 10 per cent.