What changed
Government created a 20 lakh tonne sugar buffer stock for one year from May 1, 2007, with a Rs 378 crore subsidy from Sugar Development Fund. Banks must provide Rs 420 crore additional credit limits, and the entire Rs 798 crore must go to farmers for cane price. No margin is required on buffer stock advances, as per earlier instructions.
What it means for you
Banks must allocate separate sub-limits for 100% of buffer stock value and credit the margin money amount to a special account. This account can only be used for cane payments, and no withdrawals from buffer stock or operations on the separate account are allowed. Interest on the buffer stock account is debited to the regular cash credit account.
What you must do
- Sanction additional credit limits of Rs 420 crore to sugar mills for buffer stock margin release.
- Allocate separate sub-limits for 100% value of buffer stocks from regular limits.
- Credit the amount released (in lieu of margin) to a special account and ensure it is used only for cane payments.
- Ensure no operations on the buffer stock account and no withdrawals from earmarked buffer stocks.
- Value buffer stocks in the same manner as free-sale stocks.
Who it affects
All scheduled commercial banks lending to sugar mills, Sugar mills holding buffer stock, Farmers supplying sugarcane
What is the total amount involved in this buffer stock scheme?
The government provides Rs 378 crore subsidy, and banks must sanction Rs 420 crore additional credit, totaling Rs 798 crore, all for cane price payments.
Do banks need to collect margin on buffer stock advances?
No, as per earlier RBI instructions, no margin is required on buffer stocks of sugar.
How should banks handle the buffer stock account?
Banks must create a separate sub-limit for 100% buffer stock value, credit the margin amount to a special account, and allow no operations or withdrawals from buffer stock.