What changed
Government created a new buffer stock of 30 lakh tonnes of sugar for one year from August 1, 2007, on top of the existing 20 lakh tonne buffer. Banks are required to provide Rs 630 crore in additional credit to sugar mills against this buffer, with no margin requirement. The entire Rs 1,197 crore (including Rs 567 crore from Sugar Development Fund) must be used solely for paying cane farmers.
What it means for you
Banks must disburse Rs 630 crore as fresh working capital to sugar mills against the buffer stock, with zero margin as per earlier instructions. This credit is ring-fenced for cane price payments, reducing mills' liquidity stress and ensuring timely farmer payments. Non-compliance could disrupt the sugar supply chain and invite regulatory scrutiny.
What you must do
- Disburse Rs 630 crore in additional credit to eligible sugar mills against the 30 lakh tonne buffer stock, with zero margin.
- Ensure the entire credit amount is used exclusively for cane price payments to farmers, and monitor end-use.
- Refer to and comply with operational instructions in circular DBOD.BP.BC.No.20/08.07.06/2007-08 dated July 11, 2007.
- Maintain records of buffer stock financing and report any deviations to RBI.
Who it affects
All scheduled commercial banks financing sugar mills, Sugar mills (cooperative and private) eligible for buffer stock credit, Sugarcane farmers (as ultimate beneficiaries of cane price payments)
What is the total credit amount banks must release for this buffer stock?
Banks must release Rs 630 crore as additional credit to sugar mills against the 30 lakh tonne buffer stock, with zero margin.
Can banks charge margin on this buffer stock financing?
No. As per RBI's earlier circular (DBOD Dir.BC.8/13.03.00/2006-07 dated July 1, 2006), no margin is to be kept on buffer stocks of sugar.
What is the purpose of this credit?
The entire amount (Rs 630 crore from banks plus Rs 567 crore from Sugar Development Fund) must be used exclusively by sugar mills for payment of cane price to sugarcane farmers.