When the Centre announced an up to 12% interest subvention for working capital loans of up to Rs 6,600 crore to sugar mills in December, the cash-starved industry was hoping it would not have to pay any interest over and above the government assistance. Turned out the "interest-free" loans were not exactly interest-free as some mills are being charged up to 15%, effectively making them pay up to 3% after factoring in the subvention benefit.
Bankers told FE that interest rates for some mills go up depending upon their risk profile, the quality of collaterals and guarantee, while mills complain some banks are using the stringent eligibility norms to bargain for a higher interest rate. Abinash Verma, director-general of the Indian Sugar Mills Association (ISMA), said mills, which are charged more than 12%, have to fork out additional interest rate to avail of the loans.
Compounding mills' worries, those whose loan accounts have been declared non-performing assets are finding it almost impossible to get the guarantee from the state government concerned to be eligible to get the loans. A request for the guarantee by Mawana Sugars, which last year approached the Board for Industrial and Financial Reconstruction for a package, hasn't been entertained by the Uttar Pradesh government, sources said.
Earlier this year, sugar mills, especially in Uttar Pradesh, had expressed their inability to clear cane arrears due to an unprecedented liquidity crunch stoked by a drastic mismatch between prices of sugar and cane. So, in December, the Cabinet committee on economic affairs decided to offer up to 12% interest subvention on the loans and the interest burden, estimated at Rs 2,750 crore over five years, would be borne by the Centre from the Sugar Development Fund. Mills will have to repay the loans in five years, with a moratorium on repayment in the first two years.
However, after the CCEA decision was notified, the sugar industry sought a relaxation of the eligibility criteria, terming them too stringent to meet, especially in view of the severe liquidity crunch in the sector. But the department of financial services (DFS) has refused to ease the eligibility norms, leading to fears that many mills, which are already stressed and are in need of the interest-free loans more urgently than some others, may not get the relief.
While some banks are charging higher interest rates from mills falling in the high-risk band, others are considering them ineligible, one of the bankers added.
In January, the department of financial services had written to the Indian Banks' Association, saying lending would be subject to various norms relating to security, future cash flows for the life of loan (five years), establishing the viability and debt servicing capacity, conduct of loan, including the restructuring guidelines as notified by the RBI for the sugar industry from time to time. Mills whose loan accounts have turned NPA are also covered under the scheme provided the state government concerned gives its guarantee for their new loans.
Public-sector bank (PSB) officials said other than the government's assurance to provide the interest subvention, the loans to sugar mills are being treated like any other ordinary loans. Mills have complained that some banks are asking for a processing fee of up to 1% of the loan amount. Confirming this, a senior PSB official said the guidelines don't bar them from imposing normal fees charged by banks while extending such loans. However, mills countered that had it been so, the banks shouldn't have been selective about charging such a fee from only some mills.
Bankers said they are making sure that loans are given only to those mills with a good repayment record.
As several banks are already saddled with NPAs owing to an economic slowdown, they don't wish to take any chance with defaulters.
For their part, mills, saddled with cane dues of Rs 15,000 crore by March-end, feel the government should ease the eligibility criteria for availing of loans and also announce the subsidy for raw sugar production for April at the earliest to help them cut a glut in refined sugar production.
As part of its measures to bail out the embattled sugar industry, the government had decided to offer a subsidy of Rs 3,300 per tonne for raw sugar production in February and March, apart from the interest subvention on working capital loans. Even though the incentive for raw sugar production was to be recalculated every two months, taking into account the average exchange rate of rupee against the dollar prevailing in the last seven days of the previous month, the food ministry hasn't yet notified the revised incentive for April and May so far.