What changed
Government created a second buffer stock of 30 lakh tons of sugar for one year from August 1, 2007, on top of the earlier 20 lakh ton buffer. Banks are now required to provide Rs 630 crore in additional credit to sugar mills for this buffer, with no margin requirement. The total outgo from the Sugar Development Fund is Rs 567 crore, and the combined Rs 1,197 crore must be used solely for cane price payments.
What it means for you
UCBs must extend fresh credit of Rs 630 crore to sugar mills against the new buffer stock, with zero margin—meaning higher exposure without collateral cushion. This credit is ring-fenced for cane price payments, so banks need to ensure end-use monitoring. The circular reinforces that earlier instructions from August 14, 2007, continue to apply, so UCBs should align their lending policies accordingly.
What you must do
- Disburse Rs 630 crore as additional credit to eligible sugar mills for the 30 lakh ton buffer stock, with zero margin.
- Ensure that the entire Rs 1,197 crore (including bank credit) is used exclusively for cane price payments to farmers.
- Refer to and comply with the earlier circular UBD.BPD(PCB) No. 1/13.05.000/2007-08 dated August 14, 2007 for detailed guidelines.
- Coordinate with sugar mills and state-level federations to verify buffer stock creation and end-use of funds.
Who it affects
All Scheduled Urban Co-operative Banks (UCBs), Sugar mills availing buffer stock financing, Sugarcane farmers (as ultimate beneficiaries of cane price payments)
What is the total buffer stock now and the credit amount involved?
The government created a buffer stock of 30 lakh tons (in addition to the earlier 20 lakh tons). Banks must release Rs 630 crore as additional credit, and the Sugar Development Fund contributes Rs 567 crore, totaling Rs 1,197 crore.
Is margin required on this buffer stock financing?
No. RBI explicitly states that no margin is to be kept in respect of buffer stocks of sugar.
What must the funds be used for?
The entire amount of Rs 1,197 crore, including the bank credit of Rs 630 crore, must be used exclusively by sugar mills for payment of cane price to sugarcane farmers.