When businessman Nazarudeen visited his factory in Chandanathope, in Kerala’s Kollam district on March 20, a group of women living nearby buttonholed him.

“When will you reopen the factory?” they asked. The women were employed at the cashew nut processing unit, which has been closed since October 2016. “We are without jobs for the last 18 months,” said 70-year-old Saraswathi. “The only way we can survive is if you open the factory.”

Rajamma, 58, Santhavalli, 50, and Shalini, 40, were also distressed. “We have been denied medical treatment under the Employees’ State Insurance scheme after the factory was closed,” they said.

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In February, the Syndicate Bank seized Nazarudeen’s factory and the other properties he had handed over as collateral, in order to recover the Rs 13.31 crores that he owes the bank. This was done under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, also known as the Sarfaesi Act, which was passed by Parliament in 2002. It helps banks and financial institutions recover loans from defaulting borrowers without any interference from courts. The bank’s action means that the chances of the factory reopening are bleak.

A well-known businessman in Kollam, Nazarudeen took a loan of Rs 4.5 crores in 2011 to set up the Eenam cashew factory. The cashew industry was thriving at that time and the bank enhanced the loan amount every year. But in 2016, his fortunes started dwindling following a slump in the industry. When he failed to repay his loan for three consecutive months that year, his loan account was declared a non-performing asset (loans for which the principal or interest payment is overdue for 90 days or more).

According to the Cashew Exporters and Manufacturers’ Association, Nazaruddin is one of the 741 cashew nut processing factory owners in Kollam district against whom banks have begun recovery proceedings under the Sarfaesi Act in the past two years. These businesspeople have taken loans ranging from Rs 1 crore to Rs 5 crores from 14 banks, both nationalised and private. All the factories fall under the Micro, Small and Medium Enterprises sector. So far, banks have taken over 50 cashew factories and associated mortgaged properties. According to data available with the Cashew Export Promotion Council of India, a central government organisation to promote cashew exports, the closure of factories has rendered 3 lakh workers jobless in Kollam district alone since 2016.

70-year-old Saraswathi in front of the cashew factory in Kollam where she was once employed. (Photo credit: TA Ameerudheen).

Industry collapse

Cashew nuts are among India’s top four agricultural exports, along with basmati rice, spices and tea. Data from the Cashew Export Promotion Council of India showed that India earned Rs 5,213 crores from the export of cashews and allied products in 2017. The port of Kochi in Kerala accounted for Rs 2,415 crores of these exports.

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Kollam is the hub of the cashew industry in India. It has the most number of cashew processing units in the state too – of 824 units, 741 are in Kollam and the remainder are scattered across Thiruvananthapuram, Pathanamthitta and Alappuzha districts.

Kerala’s cashew factories have the capacity to process 17 lakh metric tonnes of raw cashews every year, according to the Cashew Export Promotion Council of India. As the state’s annual cashew production is just 7.5 lakh metric tonnes, factory owners import raw cashew nuts from African countries, mainly the Ivory Coast and Nigeria, to operate their units at full capacity.

Industry insiders say that the slump in the cashew industry began around 2016, starting with the imposition of a 9.4% import duty on raw cashews by the Union government during the budget that year. This hit cashew processing units hard. To add to their woes, the price of raw cashews increased from $800 per tonne to $1,800 per tonne in the international market in 2016. However, the price of processed cashews did not increase proportionately. The industry insiders say this could be attributed to the growth of the cashew processing industry in Vietnam, which is mechanised, unlike in Kerala, where it is manual.

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“All these negative factors caused the decline of the cashew industry,” said I Nizamudeen, secretary of the Federation of Cashew Processors and Exporters, an organisation of cashew factory owners in the state. “No tax was charged on raw cashew imports till 2015. The duty was imposed to strangulate the MSMEs [Micro, Small and Medium Enterprises],” he said.

That was the time cashew unit owners started defaulting on loan repayment and the banks began to recover the loans with the help of the Sarfaesi Act.

Jacob Panicker, the regional head of the Federal Bank in Kollam, admitted that a large number of loans taken by businesspersons in the cashew industry were declared bad loans in the past two years. “It was an indicator of the trouble in the industry,” he said.

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Nizamudeen suggested that banks could have helped by providing the industry with additional funds. “Bank officials put us in high esteem when we were doing good business, but they ignored us when we were in trouble,” said Nizamudeen. “Many factories could have revived if they pumped in additional funds.”

But bank officials said it was not practical to pour more money into loss-making units. Panicker said no financial institution would take such a risk. He also added that banks have been using the Sarfaesi Act to recover default loans since 2002. “We are not resorting to Sarfaesi Act the first time,” he said. “Banks have no options but to recover the loan amount.”

Businessman Nazarudeen's Eenam cashew factory, in Kollam, was closed in 2016. (Photo credit: TA Ameerudheen).

Shattered dreams

But cashew unit owners who have defaulted feel that the banks are being too rigid.

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On January 16, Federal Bank officials attached the house of cashew factory owner Rajesh after he defaulted on his loan. He and his family now live in a rented house.

Born to a couple who had worked in cashew processing factories, Rajesh set up Ganga Cashews in 2009 with the help of a Rs 4 lakh loan from the Indian Overseas Bank. The loan was enhanced in successive years and also changed banks. In 2016, Rajesh’s loan account was with the Federal Bank, and the amount was Rs 1.99 crores.

That June, he defaulted on repayment for the first time. “The increase in raw cashew nut price, import duty and the low price of processed kernel broke my back,” he said. After he also defaulted in subsequent months, his loan account was declared a non-performing asset in September. “I had to close down my factory,” he said.

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The closure of Ganga Cashews left 364 workers – 348 women and 18 men – unemployed. “I could have revived the factory if the bank provided me with an additional loan,” said Rajesh. “But my pleas fell on deaf ears.”

Similarly, K Sasidharan Pillai, 57, owned three factories in Alappuzha district where he employed 600 labourers. His Rs 8.5-crore loan account was declared a non-performing asset in March 2016. “They attached the factories in 2017,” he said. “They haven’t attached my home yet.”

Defaulters protest

Cashew unit owners who have defaulted on loans formed the Cashew Exporters and Manufacturers’ Association four months ago and organised protests in Kollam and state capital Thiruvananthapuram. “We have requested the government to ask the banks to stop the recovery measures,” said Rajesh, a member of the association.

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Following the protests, in February, the Kerala government asked banks and financial institutions to exercise restraint while recovering loans from members of the cashew industry.

On February 28, the sub-committee on the cashew industry of the State Level Bankers’ Committee decided to stall recovery measures till May 31. This committee is an inter-institutional forum to ensure co-ordination between the government and banks on matters pertaining to banking development. It asked the borrowers to submit a proposal for the revival of their units, saying that banks would consider the proposal within the framework of the Reserve Bank of India guidelines. If the proposal is not acceptable, the borrower will get one more opportunity to approach the banks with a one-time settlement proposal before May 31. “It is the prerogative of the banks to accept or reject the one-time settlement plan submitted by the borrowers,” said a top official of the State Level Bankers’ Committee. The committee’s statement said that banks will resume recovery measures if the owners fail to settle the issue.

Panicker of the Federal Bank said he hoped the revival package would help the cashew industry overcome the crisis. “This is the best-available option now,” he said.

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But the proposal has not convinced entrepreneurs like Rajesh. “Banks might ask for additional collateral after submitting the revival plan,” he said. “Where can we find them as we have already mortgaged all our assets?”

Rajesh said the proposal clearly stated that the recovery processes would resume after May 31. “I am sceptical, but I will submit the proposal,” he said. “I want to try my luck. It is my last option.”

Rajamma says she needs her job at the cashew factory to survive. (Photo credit: TA Ameerudheen).

‘Waive import duty’

Kollayil Sudhevan, trade union leader and chairman of the government-owned Kerala Cashew Workers Apex Industrial Cooperative Society or Capex, suggested that private companies should emulate Capex’s e-tendering process to procure raw cashew. “It will allow them to purchase quality nut at competitive prices,” he said.

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Sudhevan explained that Capex floated online tenders to purchase raw cashew nuts from India and abroad, which helped the organisation understand global cashew market trends, purchase good quality cashew at the lowest prices and avoid the involvement of the middlemen.

The Cashew Export Promotion Council of India has also submitted a few suggestions to the state government to revive the industry. S Kannan, the council’s executive director and secretary, said the government must declare the cashew industry as a sick industry so that it could avail of the Rs 3,500 crores earmarked by the Union government to revive sick industries in the current financial year.

The 9.4% import duty for cashews was reduced to 2.5% in the recent budget. Kannan suggested that the Centre should waive the duty completely. “This will provide big relief for the factory owners,” he said. “The government should also ensure interest free loans for first two years and a soft loan for next three years to support the industry.”