The amended UP Sugarcane (regulation of supply and purchase) Act, 1953, has caused consternation among bankers.

The amendment has allowed the power utility of Uttar Pradesh to clear the dues it owes to Bajaj Hindusthan Sugar Ltd’s (BHSL) power arm by crediting the escrow accounts of BHSL’s 14 sugar plants in Uttar Pradesh.

While this has ensured that the dues payable to farmers by BHSL for sugar cane purchases are cleared in the run up to the State elections, bankers say this “adjustment” goes against the principles of banking and finance.

The dues are estimated to be about ₹1,000 crore.

Separate entities

Bankers emphasise that BHSL and its arm — Lalitpur Power Generation Company Ltd (LPGCPL) — are different entities as far as their loan exposure goes. The action of the UP Power Corporation Ltd (UPPCL; a UP government undertaking) in adjusting the dues it owes to LPGCPL by crediting the escrow accounts of BHSL’s 14 sugar plants could lead to defaults by LPGCPL, a senior public sector bank official said.

This could also have a cascading impact on BHSL. The sugar company has made investments amounting to about ₹770 crore in the equity shares of LPGCL. Further, BHSL has also pledged LPGCL shares with the trustees of consortium of lenders so that the power company can obtain loan facilities.

Referring to the amended UP Sugarcane (regulation of supply and purchase) Act 1953, the official quoted above said, “If one State can do this, nothing prevents the others from amending their respective state acts. If adjustment of dues happens in this manner, bankers will think twice before taking fresh exposure to state government undertakings.”

‘Legal remedy’

Ensuring that farmers receivables are cleared on time should be top priority for every state — there’s no two ways about it, said another Bank official. But then the ruling dispensations in states should also ensure that banking principles are not sacrificed for short-term gains, he said, adding that banks may seek legal remedy to address this issue.

BHSL has an aggregate sugarcane crushing capacity of 1.36-lakh tonnes of cane per day, six distilleries having aggregate capacity to produce industrial alcohol of 800 kilolitres per day, and 14 co-generation plants having a total power generation capacity of 449 MW.

LPGCL (3 x 660 MW), a part of the Shishir Bajaj Group, is located in Lalitpur district in Uttar Pradesh.