Fertilizer Industry - Priority Sector Lending can save you tide over Liquidity crisis

3 July 2021 | By IFA Global

Challenge and Observation

The company was facing severe liquidity crunch as inventory levels were high due to poor offtake and high receivables.
They offered discount to their dealers but dealers didn’t reciprocate positively due to poor harvest season as they were too laden with lot of inventory.
The company wanted to monetize their receivables through bill discounting but unable to do so due to low credibility of small dealers.
They had a discussion with one of the factoring agency however the agency asked for high margin with recourse on the company.
They knocked various doors of banks, NBFC, factors but all gone into vain.

Process

IFA explored various RBI circulars.
IFA initiated discussion with various banks and started gaining traction. But banks were not comfortable with credit profile of dealers due to their small size.
During the course of discussion with one of the private banks, IFA suggested that instead of collection made by banks directly, can the onus be shifted on the company and let company act as Agent for the bank.
IFA discussed the modus operandi with the bank’s senior official and legal team and ultimately convinced the bank.
The loan was disbursed by bank on account of dealer funding to the company.

Outcome

IFA Global appointed as their Treasury Consultants, analyzed their situation and started exploring various circulars and guidelines for prospective solution. They came across those fertilizers being served to farmers comes under agriculture industry. Therefore, dealer financing of fertilizers is eligible for Priority Sector Lending from banks.
Discussions were started with banks for Priority Sector Lending to dealers in the form of dealer financing.
Roadblocks in the nature of poor credit profile of dealers mitigated through comfort on the company in the form of collection of dues by them on behalf of dealers.
Loans were finally disbursed to the account of company.