Close on the heels of an "in principle’’ nod by the Cabinet Committee on Economic Affairs, the Centre on Thursday approved the norms for extending an interest-free loan of Rs. 6,600 crore to the sugar industry to enable it to pay off cane arrears to farmers.

In its meeting, the Cabinet Committee on Economic Affairs, gave its final approval for interest subvention of up to 12 per cent for the industry under the "Scheme for Extending Financial Assistance to Sugar Undertakings, 2013’’. The entire interest burden on the loan, estimated at Rs. 2,750 crore, will be met from the Sugar Development Fund under the Food Ministry. The ministry will also finalise the guidelines for banks and millers.

"In today's meeting, the CCEA approved the modalities for extending interest-free loans to the sugar industry,’’ Food Minister K. V. Thomas told journalists after the meeting.

The Centre will provide an interest subvention up to 12 per cent at a simple rate of interest for the additional working capital loans to the sugar millers. The loans that the mills can avail from banks will be equivalent to last three sugar sessions’ excise duty, cess and surcharge on sugar.

Mills have to repay the loans in five years and can avail of a moratorium on repayment for the first two years. ``No interest subvention (is) to be provided for the period of default in the principal repayments,’’ an official statement said.

The loan would be disbursed through a separate bank account to ensure the utilisation of money is monitored. The Finance Ministry will issue necessary instructions to banks to operationalise the lending process, including appointment of nodal bank for the purpose, said Mr. Thomas.

The sugar undertakings with loans classified as "Non Performing Assets’’ by banks will also be eligible for the loans provided the concerned state governments give guarantee for their new loans.

As per the norms approved by the CCEA, the loans shall be provided by banks ``exclusively’’ for making payments to sugarcane farmers including arrears.

All loans which are sanctioned by June 30, 2014 and disbursed by September 30, 2014 by the lending banks, would also be covered under interest subvention facility, Mr. Thomas added.

The central government has intervened to facilitate a working capital for sugar millers who are said to be in difficulty owing to burgeoning sugar stocks and decline in prices resulting in delayed crushing and payment to cane growers.