The Hindu Business Line : IBA cheers tea sector with revival package

THE Indian Banks' Association (IBA) is ready with the revival package for the tea industry as asked by the Union Finance Minister in his interim Budget.

For the large tea producers, IBA has made seven suggestions, the foremost of which is conversion of rupee loans into foreign currency borrowings and funding of VRS activities in the tea companies.

The Indian Tea Association (ITA) has welcomed IBA's suggestions. The ITA Chairman, Mr C.K. Dhanuka, said it was a right move in a positive direction. "The members of the tea industry are feeling great. We are hopeful that funds will finally be available to the tea corporate houses," Mr Dhanuka told Business Line.

According to IBA recommendation, loans taken by the tea companies up to December 31, 2003, "may be considered for restructuring" but only on a "case-to-case basis on merit".

"Irregular portion of outstandings in term/working capital loan accounts as on December 31, 2003 may be carved out into a special tea term loan (STTL)," IBA stated.

It further suggested that banks can give loans to the tea corporate houses for improving their productivity and it can be a voluntary retirement scheme (VRS) for the workers but the proposal from the corporate house would have to be financially viable.

Reacting to it, Mr Dhanuka said there were lots of areas within a tea corporate house where rationalisation of workforce is necessary. "It may not necessarily be at the plantation level. There are excess staff in several offices too", he said.

IBA suggested that the repayment of STTL may be allowed over a period of five to seven years and it may include a moratorium of one year but all will depend on the cash flow projection of the individual company. The interest rate of the STTL, IBA noted, will be the benchmark rate of the individual bank.

"Banks may examine feasibility of converting rupee loans including structured loans into foreign currency loans to pass on the benefit of lower interest rates to the borrowers", IBA stated.

In another suggestion, IBA asked banks to consider fresh working capital limit to tea companies after assessing their needs. The association allowed its members to price this loan as per their own policies.

"In case where the asset cover is insufficient, banks may seek additional collateral security from the borrowers", IBA stated. Reacting to it, Mr Dhanuka said banks should be positive on this aspect.

"After all a good tea estate is in itself a great asset. It might not always be possible for the tea company to give collaterals for all the funds it requires. Here the banks will have to be more cooperative with the corporate houses", he said.

IBA has also made several suggestions for the small growers and the bought leaf factories. Everything has been clubbed together under the `package of relief measures for tea industry'. The package was hosted on IBA's Web site.

For the other two sectors of the tea industry, IBA's recommendations were almost same, except that for the small growers. Here it suggested working capital limit up to Rs 2 lakh for interest rate not more than nine per cent.