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Tea looks for farm spill-over

Calcutta, Sept 7: Public sector banks could consider providing tea loans at 9 per cent, the rate at which the farm sector is supposed to get credit under a recent policy stance.

“We will consider providing loans at 9 per cent, but that will based on the financial health of a company,” a senior United Bank of India official said.

The government has announced that credit to farmers would be offered at 9 per cent. Later, a Reserve Bank clarification that money lent to tea firms should be classified as an agriculture advance, has raised hopes that the benefits of a low-farm sector PLR would automatically apply to firms with tea plantations.

Bankers, however, are wary since the industry is in the throes of a crippling financial crisis. “We have to be extremely cautious while giving any loan to the sector,” they added.

The recession that has continued unabated since 1999 has taken a heavy toll on large segments of the industry. This has left firms with eroded working capital asking for scheme of term finance to tide over the crisis.

Indian Tea Association, the apex body of the tea industry, is preparing a scheme that will require the support of the Centre, states, banks and financial institutions. Banks say they will participate if it is viable.

Companies hit by adverse market conditions in an industry that has not lost intrinsic viability collectively are clamouring for a debt-restructuring process.

This led ITA to ask the Reserve Bank to craft an assistance package that could be implemented by banks. The Madhukar Committee worked out the blueprint, but the plan faltered when banks failed to execute it as desired.

At the same time, the package was visualised as one off measure and not an “ever-greening” mechanism. Industry officials said the industry’s problems need to be, therefore, addressed in terms of fundamentals – one aspect of which is the high interest costs.

The paradox is that stronger units are able to access funds at lower costs given their better ratings and their ability to go for options tied to overseas rates.

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