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Kerala cashew in crisis as the bank prepares for recoveries under SARFAESI Act

After a Covid-induced lull, banks are back to asking cashew entrepreneurs who had defaulted on paying loans some hard questions. Some of the banks have published the names of defaulters, asking them to clear dues within 60 days.

The notice served under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act) means that banks are going ahead with loan recovery, notwithstanding the government intervention to find ways to revive the industry. The crisis is quite widespread as only around 100 factories are currently functioning, out of the 836 spread around Kollam and the neighbouring districts.

The notices have been issued at a time when the government has initiated the formation of a One Time Settlement committee to offer relief. The Industries Minister P. Rajeeve has taken up the issue with the banks and the government has issued orders declaring a moratorium on the recovery of loans till 31 December.

the lenders seem to be in a hurry as they see little progress in the support mechanism initiated by the government four years ago. Moreover, the procedures under the SARFESI Act is governed by the rules of the Reserve Bank of India.

If anything, the recovery measures have been painful. Without enough support systems in place, small-scale cashew processors have suffered the worst. Before the Covid outbreak, the crisis in the sector led to the suicide of five such entrepreneurs in a single year. The pandemic has only worsened the situation as more accounts become non-performing assets, adding to the lenders’ concerns.

The loan amounts vary from Rs. 2.0 crore to Rs. 300 crore, depending on the business. The Cashew Export Promotion Council of India (CEPCI) has been pressing for loan restructuring and the enabling of fresh loans to run the business.

“There are various measures available, like credit guarantee schemes, to facilitate business. Banks and the government should consider this to restructure non-performing assets, waive off interest or postpone the demand for payment, and resize the principal amount in smaller instalments,” said former CEPCI chairperson R. K. Bhoodes.

The cashew processors who are not part of the big league have formed the Kerala Cashew Industry Joint Protest Council to demand a breather from the banks’ terms and also to protest against revenue recoveries.

“Banks could have waited till a suitable mechanism was arrived at. Entrepreneurs and their families are facing so much pressure due to the revenue recovery measures from banks,” said K. Rajesh, general convenor of the Kerala Cashew Industry Joint Protest Council. “The pressure is real. I realised that many of the entrepreneurs who protested along with me had died by suicide. A 36-year old businessman named Simon is the latest to die,” he added.

Covid or otherwise, the fate of most factories closed are unlikely to change as the industry is burdened with inherent problems. In the early ‘80s, the state-controlled up to 96% of the business, which has now come down to 9% with a bleak outlook.

“The bank notice is a sign of things to come. We have lost the capacity to compete with others with meagre raw materials and a high processing cost. These issues are unlikely to change. So, most of the factories will shut down in the next 10 years,” said J. Rajmohan Pillai, chairman of Beta Group, a dry fruit trading firm.

He said the state lost the edge in processing skills to other countries, like Vietnam, which uses superior technology. Private businesses also blamed the public cashew companies -- the Kerala State Cashew Workers Apex Industrial Cooperative Society (Capex) and the Kerala State Cashew Development Corporation (KCDC) -- for the harm caused to the industry at the cost of public money.

When the availability of raw cashew nuts became a problem, the LDF government set up a Cashew Board in 2017 to procure nuts from producer countries directly.

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