The Union Cabinet and its empowered arm, the Cabinet Committee on Economic Affairs (CCEA), met separately on Thursday to clear a number of decisions.

The CCEA cleared the modalities for implementing the earlier decision on a Rs 6,600-crore interest-free loan package forsugar mills. A senior official said the loans would be disbursed through a separate bank account to ensure the utilisation was monitored. A nodal bank would also be appointed for this.

The interest burden, estimated at Rs 2,750 crore over the next five years, will be borne by the government from the Sugar Development Fund. The loans will be provided by banks exclusively for making payment 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 mills functional during the 2013-14 season (October-September).     

Those with loans classified as non-performing assets by the banks will also be eligible, provided the state governments concerned give a guarantee. All loans sanctioned by June 30, 2014 ,and disbursed by September 30, 2014, by the lending banks would be covered under the interest subvention facility.

The lending will be subject to the various norms on scrutiny, future cash flows of five years, establishing the viability and debt servicing capacity, including the restructuring guidelines, as notified for the sugar industry from time to time. The loans will be backed by security and collateral of the unit availing it, including personal guarantees and other assets of promoters which are free from encumbrances.      

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 was one recommendation of the group of ministers set up by the Prime Minister under the chairmanship of Agriculture Minister Sharad Pawar to address the industry's cash crunch.