The State Bank of Pakistan on Tuesday instructed banks to ensure that the wheat procurement finance facility is not utilised for wheat hoarding. Banks were also directed not to entertain any application for grant of fresh loans after June 30, 2008 for procurement of wheat and inspect the finance availing flourmills on weekly basis to make sure that wheat stock is gradually being released.
The SBP has issued special direction to banks for procurement of wheat by private sector and issued circular MFD No 1 in this regard. The State Bank said: "It has been decided that with a view to ensure participation of private sector in wheat procurement during the wheat procurement season, banks will continue to provide financing facilities to their eligible borrowers (licensed functional flour mills only) for procurement of indigenous wheat strictly (from fresh wheat crop 2008.
However, banks will ensure that the financing facilities extended to their borrowers are strictly utilised for the purpose for which they have been granted. Special efforts may be made to ensure that the facilities availed for purposes other than wheat procurement are not utilised for financing of wheat stocks. Loans provided to the private sector will be for the procurement of fresh indigenous wheat only and repayable on or before 31st December 2008 positively.
While, non-compliance of the requirement of SME & MFD Circular No 01 dated 26-01-2007 regarding adjustment of loans disbursed during the year 2007 would make the prospective borrowers disentitled to avail financing for procurement of wheat during 2008. Fresh financing to the eligible borrowers for procurement of wheat during 2008 shall start from commencement of wheat procurement season 2008 in respective provinces, The State Bank said.
In addition, wheat procurement financing will be subject to minimum cash margin requirement of 25 percent of the value of the wheat stock. Banks shall not provide any financial facilities (funded or non- funded) to enable borrowers to meet the margin requirements.
Central bank allowed banks that they will determine the rate of mark-up on lending to the private sector for the purposes of wheat procurement depending upon the risk profile of each borrower."
As lending to the government agencies for wheat procurement is secured against government guarantee, it is expected that the related mark-up rate would be competitive in comparison to the rate charged to the borrower in private sector, the central bank added.
The State Bank has directed banks that will not entertain any application for grant of fresh loans after June 30, 2008 for procurement of wheat. However, banks may provide financing facility to functional flour mills for purchase of indigenous wheat from the licensed wheat traders, who have procured wheat during the procurement season and respective Food Department against supply of wheat by them."

Copyright Business Recorder, 2008

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