The Hindu Business Line : IBA drafts revamp plan for tea sector loans

THE Indian Banks' Association has advised banks that with respect to advances made to the tea industry, they should consider converting existing rupee loans into foreign currency denominated funding.

In the relief package for the tea-sector drawn out by the association, in keeping with the recommendations made by the Finance Minister in the Interim Budget, IBA said, that this would enable the units to enjoy the benefit of the lower interest rates, without banks having to make sacrifices.

IBA recommended that borrowers under the tea sector could be divided into three segments: 1) Small tea growers with holdings not more than 10 hectares 2) Bought leaf factories which do not have own gardens and 3) Large tea growers and manufacturers. Advances to this sector consist of both term loans for development of gardens, construction of factory sheds, processing facilities and working capital facilities for on-going production.

Any restructuring exercise would involve segregation of overdues into a separate facility to be repaid over a period of time, IBA said.

While restructuring the borrowal accounts in the tea sector, the regulatory requirements in RBI's circular dated March 30, 2001 will have to be kept in mind. The industry had sought extension of the delinquency period beyond two half years on the plea that the harvesting season for tea is 9-12 months. However, the Reserve Bank of India had not acceded to this request, IBA said.

For small tea growers, it was suggested that banks may carve out an irregular portion of outstandings in term or working capital loan accounts as on end-December 2003, into a Special Tea Term Loan (STTL) repayable in 5 to 7 years with a moratorium of one year.

Interest on STTL may be charged at the benchmark rate of the bank. Fresh working capital limit may be considered based on assessment of requirements.

Working capital limits up to Rs 2 lakh may be sanctioned at concessional rate of interest not exceeding 9 per cent per month. For loans exceeding Rs 2 lakh, interest may be charged at the benchmark rate of the bank.

For bought leaf factories, IBA recommended, that banks may carve out an irregular portion of outstandings in term or working capital loan accounts as on end-December 2003, into a special tea term loan (STTL) repayable in five to seven years with a moratorium of one year.

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