What changed
RBI issued a circular on August 14, 2007, instructing scheduled urban co-operative banks to implement the Government of India's scheme for creating a buffer stock of 20 lakh tons of sugar for one year from May 1, 2007. Banks must sanction additional credit limits of Rs 420 crore, with no margin on buffer stocks, and the total Rs 798 crore (including government subsidy) must be used exclusively for cane price payments.
What it means for you
UCBs must allocate separate sub-limits from existing credit limits to cover 100% of the value of buffer stocks held by sugar mills, without requiring margin. The funds released must be credited to a special account and used solely for cane payments. Banks must ensure no withdrawals from buffer stock or the separate account are allowed, and interest on the buffer stock account should be debited to the regular cash credit account.
What you must do
- Sanction additional credit limits of Rs 420 crore to sugar mills as per government scheme, with no margin on buffer stocks.
- Allocate separate sub-limits from regular limits for 100% value of buffer stocks and credit the released amount to a special account.
- Ensure the special account funds are used exclusively for cane price payments to farmers.
- Verify individual sugar mill allocations via Directorate of Sugar notification and permit operations only on that basis.
- Prohibit any operations on the buffer stock separate account and withdrawals from earmarked buffer stocks.
Who it affects
All Scheduled Urban Co-operative Banks (UCBs), Sugar mills availing credit from UCBs, Farmers supplying sugarcane to sugar mills
What is the total amount involved in this buffer stock scheme?
The government will release a subsidy of Rs 378 crore from the Sugar Development Fund, and banks must sanction additional credit limits of Rs 420 crore, totaling Rs 798 crore, all to be used for cane price payments.
Do banks need to collect margin on buffer stock advances?
No, the circular explicitly states that no margin is to be kept in respect of buffer stocks of sugar. Banks must provide 100% drawings against buffer stocks.
How should banks handle the buffer stock accounts?
Banks must create a separate account for buffer stock funds, ensure no operations are allowed on it, and debit interest on this account to the regular cash credit account. Buffer stocks must be valued like free-sale stocks.