Centre in talks with banks to stop fertiliser subsidy funding
The government is currently in talks with banks regarding the potential discontinuation of financing for fertiliser subsidy receivables. This initiative comes after the government's implementation of direct benefit transfer (DBT) to fertiliser com...
The government earlier used to rely on special banking arrangements (SBA) to give funds to fertiliser companies against subsidy claims.
The government is in discussion with banks on the possibility of discontinuing financing fertiliser subsidy receivables. This follows the government's move to offer direct benefit transfer (DBT) to fertiliser companies based on actual sales of retailers to beneficiaries.
Currently, a special exemption is given by the Reserve Bank of India, which allows banks to finance fertiliser subsidy receivables for a period of 60 days.
"This was meant to be a short-term measure. It is being reviewed, but no final decision has been made. We have received some suggestions from banks, and those are being examined," said an official aware of the matter. Under the fertiliser DBT system, 100% subsidy on various fertiliser grades is released to fertiliser companies based on actual sales made by the retailers to the beneficiaries.
"The subsidy payments are processed on a weekly basis, so there is no backlog," the official said, adding that the scheme has been able to weed out any irregularities as buyer identification is done through POS (Point-of-Sales) devices based on Aadhaar authentication, voter ID, or Kisan credit Card or KCC. The government earlier used to rely on special banking arrangements (SBA) to give funds to fertiliser companies against subsidy claims. This route was used when there was a fund shortage that led the government to arrange loans through state-run banks for making subsidy payments.
A senior bank executive said lenders have shared their concerns over the immediate discontinuation of the exemption as it may have an adverse impact on the liquidity of fertiliser companies.
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"At present, subsidy receivables are a major component of their financial parameters while assessing their working capital needs," the executive said, adding the government may hold further talks with RBI before taking a final call on the matter.
Under existing laws, lenders face curbs on extending bridge loans against amounts receivable from central or state governments through subsidies, refunds, reimbursements, or capital contributions.
