Financial Daily from THE HINDU group of publications
Friday, Jul 26, 2002
Agri-Biz & Commodities
Columns - Focus
RBI relief package may pep up tea industry
Rabindra Nath Sinha
KOLKATA, July 25
IT is now the turn of the banking sector to see how it can assist the problem-ridden tea industry. Judging by the indications available, it appears the banking sector has seen the case for a relief package for tea companies.
Why is the tea industry seeking reliefs? The submission of the industry, the Commerce and Industry Ministry and the Tea Board can be summarised thus : International commodity prices including those of tea have remained depressed for the last three-four years.
Global tea demand has not been growing at the desired pace and Indian tea exports, in particular, have been suffering. With the declining price trend persisting into the current year, a good number of tea companies, both in North and South India, have been incurring cash losses.
Why does the industry think it has a strong case? From a banker's perspective, the industry can claim to have a good track record of observing banking discipline.
The industry's repayment record can be considered generally satisfactory and that explains why despite the persisting slack, NPAs have not yet emerged as a general malaise.
Finally, the industry operates in backward, socially sensitive areas and, therefore, its operations provide socio-economic support in those areas. Ideally, institutional arrangements should be introduced again to facilitate periodic review by banks under RBI's guidance of the industry's operational issues.
What are the main demands of the tea industry? The foremost demand naturally is for a reduction in interest rates, preferably to PLR. The second important demand is that working capital deficits should be converted into a term-loan and tea companies allowed suitable repayment period with moratorium.
The industry finds banks' prevailing spread on interest rates (over PLR) rather high, which has a cost-push impact.
In regard to long-term development loans for which Nabard's refinance is the only source, the industry's point is that while Nabard charges a fixed rate of 10.5 per cent, banks add four-five per cent as administrative costs.
A significant suggestion made at the meeting was that the state should assume some responsibility for the welfare programmes that the tea industry has to fund on a regular basis under the Plantation Labour Act.
The industry's demand for reliefs from the banking sector was discussed threadbare at a high level meeting convened on July 10 in Mumbai by RBI's Deputy Governor, Mr Vepa Kamesan. The meeting was set up at the instance of the Union Commerce & Industry Ministry. Represented at the meeting were the Ministry, Tea Board, Nabard, major banks having exposure in the tea industry, Indian Tea Association, Tea Association of India, Upasi and bought leaf sector.
Mr Kamesan decided to constitute a committee under the chairmanship of Mr Madhukar, CMD of United Bank of India. The committee, which includes representatives of the industry, Ministry, Tea Board, SBI and Nabard, will determine a package that will stand the tea industry in good stead in the given circumstances.
Based on the committee's suggestions, RBI would issue what may be termed as prescriptive guidelines for commercial banks. With commercial banks allowed autonomy by RBI for determining interest rates with reference to PLR or for that matter the spread, there is no question of RBI issuing directions to commercial banks.
The tea industry's assessment is that this exercise will be over before long. A relief scheme from the banking sector, when forthcoming, will supplement the support package extended to the industry by the Ministry and Tea Board in recent months.
Mention in this context may be made of the doubling of the allowance under Sec 33 AB of the Income-tax Act to 40 per cent, subsidised crash tea factory upgradation scheme and a scheme to take care of the additional freight that transhipment in Colombo entails for incremental exports of orthodox tea, tea bags and packet tea. Exercises have been initiated to continue the tea factory upgradation and export-related schemes.
Send this article to Friends by E-Mail
Stories in this Section
The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription
Group Sites: The Hindu | Business Line | The Sportstar | Frontline | Home |
Copyright © 2002, The
Hindu Business Line. Republication or redissemination of the contents of
this screen are expressly prohibited without the written consent of
The Hindu Business Line