FRIDAY JUNE 29: Banks to provide Rs 175 billion financing for wheat procurement

KARACHI: Commercial banks have agreed to provide Rs 175 billion financing out of the estimated requirement of Rs 202.1 billion for procurement of 7.7 million tons of wheat for this year. Sources in Banking Industry told Business Recorder on Thursday the government had not only increased wheat procurement target, but also revised upward the support price for the ongoing season to support farmers.
For this year, the federal government has set a quantitative procurement target of 7.7 million tons as compared to 6.8 million tons of the last fiscal year. While wheat procurement price for ongoing season has also been increased by Rs 100 to Rs 1,050 per 40 kilogram from Rs 950 per 40 kilogram.
To meet the new wheat procurement target, provincial and federal procurement agencies required a financing of Rs 202.1 billion during the on-going procurement season. However, sources said, the consortium of commercial banks has agreed to provide Rs 175 billion for wheat procurement this year.
Bankers are expecting the actual borrowing requirements by the end of the season would be less than the estimates, as previous years' experience shown that the demand was lower than the financing estimates. There was some difference between the targets and actual procurement in FY11 as during the year against a target of 6.8 million tons, some 6.2 million tons of wheat was procured. In addition, a financing of Rs 133 billion was availed by the procurement agencies in FY11 against the estimated financing of Rs 160.8 billion.
Similarly, during FY10, actual procurement was 6.7 million tons with financing of Rs 147.8 billion against the quantitative procurement target of 7.5 million tons with financing requirement of Rs 178.1 billion. "Therefore, the banks have approved less than estimated financing, as they are expecting the procurement will be less than the target," they added.
On the other hand, though the new wheat procurement season has started, the federal and provincial wheat procurement agencies have heavy stock, as the price in open market is less than the government's procurement rates, sources said. Followed by the slow offloading of the commodity, loans witnessed net retirement of Rs 92.9 billion during July-March of current fiscal year 2011-2012 (FY12), as compared to a retirement of Rs 121.6 billion last year, depicting a decline of 24 percent or Rs 28.7 billion.
The lower repayments under wheat financing, and additional borrowing for the procurement of sugar and fertiliser have reduced the pace of retirement usually seen in the months from July till March of every year, they added. Agency-level data indicate that Food Department of Punjab has repaid almost 100 percent of the loans acquired in the last procurement season. On the other hand, Food Department of Sindh and Pakistan Agricultural Storage and Services Corporation (PASSCO) could not retire a sizeable portion of their dues, which may complicate their procurement this season.