SBI fears defaults by UP private sugar mills

State Bank of India (SBI), which has the highest exposure to private sugar mills in Uttar Pradesh in the form of working capital loans, has blamed the cane pricing policy in the state for the “high losses” incurred by mills and resultant cane arrears.

Almost 60 per cent of total working capital loans, estimated at Rs 10,000 crore availed of by the 95 private mills annually in Uttar Pradesh, are provided by SBI.

The private mills are currently saddled with cane arrears to the tune of Rs 3,500 crore. The Allahabad High Court on September 5, while disposing off a petition, had directed the mills to liquidate their sugar stocks by October 31 for settling farmers’ dues.

SBI Chairman Arundhati Bhattacharya had written a letter dated September 9, 2014 to Uttar Pradesh Chief Secretary Alok Ranjan, expressing concern over loans becoming non-performing assets, since the high court order mandated that the entire sale consideration be paid to farmers through the respective district magistrates.

Pursuant to the high court order, Uttar Pradesh sugar companies would have to distribute their entire sales consideration to farmers, leaving a nil amount for payments such as interest and loan instalments leading to delay and defaults, jeopardising the interests of banks, who have provided working capital and term loans to the sugar industry, the letter reads.

Bhattacharya said during the last three-four years, the sugar sector had been suffering on account of excess capacity at the international and domestic levels, uncertain and non-conducive government policies, particularly relating to cane pricing, import of raw sugar and restrictions on export.

“The companies, particularly in Uttar Pradesh, which had incurred capital expenditure, could not avail the benefits under the state government policy declared in 2004 as the same was withdrawn in 2007. This has put a lot of financial pressure on all such companies, thus further impairing their capacity to even pay the farmers,” she said.

State Bank of India