Ban on Apex Bank hits sugar co-op funding

The fate of around 200,000 farmers and workers in Maharashtra hangs in the balance as funding to nearly a dozen co-operative sugar factories has been choked following delicensing of the Apex Urban Co-operative Bank of Maharashtra and Goa.

An Apex Bank-led consortium of banks has a term loan and working capital exposure of around Rs 400 crore (Rs 4 billion) to these factories.

Though the sugarcane crushing season started three weeks ago, these factories are yet to tie up working capital.

A sugar factory having a crushing capacity of 1,250 metric tonne per day requires Rs 20 crore (Rs 200 million) working capital per season. A bigger sugar factory with a crushing capacity of 2,500 metric tonne per day requires Rs 40 crore (Rs 400 million) working capital per season.

The factories fear that efforts to get public sector banks to take over Apex Bank's Rs 120 crore (Rs 1.2 billion) loan exposure and replace it as the lead bank in consortiums could be a long drawn out affair.

The public sector banks need to conduct due diligence of Apex Bank's assets (the quality of the books of the sugar factories which have taken loans) before they acquire the loans.

This will be a time consuming process. Once a farmer and a sugar factory enter into an agreement, the former cannot go to any other factory for crushing cane.

If these factories do not function due to non-availability of working capital, the farmers will be in deep trouble. They may be left with no choice but to destroy the sugarcane produce and switch to another crop in the next season.

"The farmer will be under tremendous financial burden if his cane is not crushed and he is not paid by the factory," said a factory owner.

On an average each factory has 3,000 to 4,000 member-farmers, 800 workers and 10,000 harvesters and transporters. If these sugar factories do not function, it will deal a blow to the rural economy in Maharashtra.

The Apex Bank was delicensed on October 30 by the Reserve Bank of India following a Supreme Court directive.

The apex court directive said there cannot be two state level co-operative banks in one state.

Besides the Apex Bank, the other state level cooperative bank is Maharashtra State Cooperative Bank.