Mechanism to be devised for sick units' loans restructuring: SBP governor assures Senate body

State Bank of Pakistan (SBP) Governor Salim Raza has agreed with the Senate standing committee on finance to devise some effective mechanism for restructuring loans of those sick industrial units affected by worsening law and order situation in NWFP and Balochistan or economic slowdown.
Responding to various queries of the committee here on Wednesday, he outlined the roadmap for operationalisation of development financial institutions (DFIs) for long-term project financing and revival of these sick industrial units within 12 months period. The committee met with Senator Ahmed Ali in the chair for the second day in parliament house here on Wednesday to finalise amendments in the Finance Bill 2009.
The SBP Governor told the committee that the situation in the country "requires us to think about special restructuring of loans" to these units to provide full support to them from the financial system. How it could help industrialists, a meeting would be held with the heads of commercial banks to sort out this important issue. Restructuring has become necessary, as the banks have also started thinking about the restructuring of loans, he added.
Senators from NWFP and Balochistan informed the SBP Governor that industries and manufacturing units in Hub and Swat, and other districts of NWFP have almost closed due to the worsening law and order situation in NWFP and Balochistan. Their loan repayments/instalments have become due and they are unable to meet their debt obligations.
They demanded to write off Rs 32 billion loans against NWFP industrialists or at least allowing them remission in mark-up of one year. The SBP Governor assured the committee to work out some viable mechanism for restructuring of these loans. He said that new State Bank law would be ready by August and existing provisions relating to its autonomy would be formalised through this law.
In the new law, an independent Monetary Policy Committee would be formed. However, the role of Ministry of Finance would remain intact. Explaining Monetary Policy, he said that policy statement was due in July this year, and explained that at present month-on-month inflation had dropped to 14 percent and policy rate also stands at 14 percent.
Explaining the centralisation of banking process, he said that due to the technology the banks have centralised their LC issuing operations. However, they would be asked to complete LC processing within minimum time for importers of three provinces of Punjab, NWFP and Balochistan.
He said that provision of foreign exchange for diesel import would be eliminated by August this year, and then for crude oil import in due course of time. He, however, said that at present foreign exchange held by SBP amounts to $8.1 billion and is likely to increase to $9 billion by June 30 this year.
Replying to a question of personal guarantee, asked by the banks for sanctioning of loans, the Governor said that companies having their balance sheets clear and cash flows correct, banks do not ask for the personal guarantee. Haroon Akhtar Khan pointed out that a few foreign banks are denying opening of bank accounts of politicians and parliamentarians.
The Governor assured the senators that he would write letters to the heads of the foreign banks for redressal of this issue. The Governor informed the committee that SBP has taken notice of denial by banks for provision of export refinance, and said that Rs 40 billion export refinance is still available with SBP unutilised. He assured them that issues relating to Credit Information Bureau (CIB) would also be looked into.
He said that policy rate would drop according to the slide in inflation. However, he hinted that market rates would take some time to come down as the demand in economy is seen in near future.
He said that the federal government has borrowed from SBP and commercial banks to the tune of Rs 750 billion. However, Rs 350 billion would be repaid in due course. He said that those who obtain loans after signing contract with banks, the late payment penalty becomes due after due date. He however, assured the committee that this regime would be reviewed by SBP. He also assured of considering extension in loan repayment period for industrial sector, especially for sugar industry, to avoid default.