Special Banking Arrangement for payment of outstanding subsidy to fertilizer companies during 2014-15

Special Banking Arrangement for payment of outstanding subsidy to fertilizer companies during 2014-15

The Cabinet Committee on Economic Affairs chaired by the Prime Minister Shri Narendra Modi, today has given its ex-post facto approval for a Special Banking Arrangement (SBA) for a loan of Rs.7000 crore with the consortium of Public Sector Banks led by State Bank of India (SBI) and Punjab National Bank (PNB) for settlement of outstanding indigenous urea subsidy bills of fertilizer companies in 2014-15.

This has already been implemented/operationalized to overcome the liquidity problems of the fertilizer companies. Under the above SBA, a total of Rs. 6806.66 crore for settlement of subsidy bills with the two consortiums of Public Sector Banks led by SBI and PNB was raised by the Government. The above loan amount along with interest liability on the part of Government thereon amounting to Rs. 64.03 crore was paid to the Banks.

Background

Government is making available fertilizers, namely Urea and 22 grades of P&K fertilizers to farmers at subsidized prices through fertilizer manufactures/importers. For making funds available to the fertilizer companies against their subsidy claims, the Ministry of Finance had approved SBA for an amount of Rs. 7000 crore with Government interest liability limited to G-Sec rate. Accordingly, an SBA was worked out with the two consortiums of banks led by State Bank of India (SBI) and Punjab National Bank (PNB) for an amount of Rs. 7000 crore to meet the outstanding subsidy claims of fertilizer companies. The loan together with Government Interest thereon has been repaid from BE 2015-16 within the sanctioned budget under the vote on account.