Hands off policy issues: UP to banks on cane pricing

Sugar caneTogether, SBI and PNB have an exposure of Rs 5,000-6,000 crore to sugar mills in the state, accounting for the largest chunk of loans to the industry. (Reuters)

Sugar mills in Uttar Pradesh may be bleeding profusely, but the state government wants the Centre to tell their nervous lenders that any attempt by them to influence policy matters is unwelcome.

Irked by letters from the chairpersons of State Bank of India and Punjab National Bank to the state government seeking the implementation of the Rangarajan panel formula on cane pricing so that cash-starved mills' ability to pay off debt improves, UP chief secretary Alok Ranjan has written to the Union finance ministry to ask the lenders to keep off from the state government's policy affairs.

In a strongly-worded letter, written in Hindi, to financial services secretary GS Sandhu late last month, Ranjan said: "...the Union government is expected to issue orders to the aforesaid authorities, conveying to them that any interference in the state's internal policy matters is not appropriate, as it vitiates the atmosphere in the sugar sector with which lakhs of farmers are associated and could potentially agitate them".

Together, SBI and PNB have an exposure of Rs 5,000-6,000 crore to sugar mills in the state, accounting for the largest chunk of loans to the industry.

Alarmed by the prospects of loans turning bad as the sugar industry's operations remained "unviable" due to exorbitantly high raw material prices fixed by the state, SBI chairman Arundhati Bhattacharya and PNB chairman KR Kamath had written to the UP chief secretary to urgently finalise a cane pricing formula, factoring in interests of all stakeholders.

The Allahabad High Court's order that farmers would have the first right over the realisation from sugar sales, and not the lenders, had exacerbated the banks' fears about a

rise in non-performing assets.

In the letter, Bhattacharya had said: "The cane pricing policy followed by the UP government seems to be the primary reason for the high losses incurred by the sugar mills in UP, leading to cane payment arrears. It is worth serious examination whether the state government should link sugarcane prices with sugar prices as per the Rangarajan committee formula (75% of the sugar price to be paid to sugarcane farmers), which has been adopted by all other major states producing sugar."

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