State Bank of Pakistan (SBP) will provide only 70 percent refinance against such limits for current year to banks under Export Finance Scheme, while the balance 30 percent shall be funded by the banks from their own resources.
The SBP announced another significant strategic change in the refinancing limits and resource sharing arrangements for Export Finance Scheme (EFS) in new monetary policy to reduce its consequences for reserve money growth and promote efficient utilisation. In this regard the SBP has issued SME & MFD circular No 03 on Tuesday to the all heads of banks.
The SBP said that to enhance effectiveness of EFS and its performance oriented availment by genuinely progressive exporters and with a view to avoid structurally inherent adverse monetary policy implications in the existing mechanism, it has been decided with immediate effect to revise the EFS.
New parameters the limits of banks under EFS scheme for the year 2007-08 shall stand fixed at the level of utilised amounts as on June 30, 2007. The limit for each bank is being conveyed separately.
In case a bank is currently availing EFS for an amount exceeding the outstanding balance as on July 30, the position must be regularised within the conveyed limits by 30.11.2007.
According to revised scheme, the SBP shall allow only 70 percent refinance for EFS against such bank limit, which has been fixed at the level of outstanding amounts as of June 30, 2007, while the balance 30 percent shall be funded by the banks out of their own resources to ensure deeper involvement in this vital area of support to exporters and export oriented undertakings, circular added.
However, exporters will continue to get the financing from banks for 100 percent of their entitlement to borrow under the existing Scheme on the same rate of 7.5 percent for current fiscal.
Banks shall continue to avail 70 percent refinance from SBP-BSC offices as per the existing procedures where the Head Office may assign sub-limits for borrowings from SBP-BSC offices, as being currently done.
While the exporters will continue to get the financing from commercial banks for 100 percent of the invoice value/contract/Export Letter of Credit/shipping documents under Part-I and or their entitlement to borrow under Part-II.
"Banks will be required to ensure that the total outstanding refinance availed by them from the State Bank as on June 30 2007 is reduced by 30 percent latest by 30 June 2008.
To make this reduction gradual, the aggregate outstanding refinance as on June 30 must be reduced by at least 15 percent, latest by the end of January, 2008," the SBP said in circular.
The SBP said the amount of refinance not provided by the State bank, ie component of the export credit provided by the banks under the Scheme from their own sources, would be deducted from the sum total of the demand liabilities determined for the purposes of computation of Cash Reserve Requirement of each bank.
Banks are advised in their own interest to ensure utilisation of such financing for the intended purposes. Any misuse, acts or omissions and collusion establishing diversion of funds for other purposes shall be stiffly penalised by SBP, the SBP added in the circular.
Exporters availing financing facilities under Part-IT of the scheme shall continue to be required to submit EF-l statement duly verified by the respective offices of FEOD, SBP-BSC within two months from the completion of the financial year, as at present.However, while applying for roll over of loans under Part II after completion of the initial 180 days or at an earlier date, exporters shall be required to submit a statement showing details of shipments of eligible goods to the extent of 70 percent of the refinance already availed against which roll over is being sought.
SBP-BSC shall not allow the roll over facility unless shipments to the extent of 70 percent of refinance availed are established as above, SBP said and added "banks will be required to forward duly authenticated copy of the said statement of shipments to the concerned Office of the SBP-BSC along-with the loan application for roll over."
Compliance to this requirement shall invariably be checked by the verifying teams of the concerned office of the SBP-BSC, which shall not substitute for the normal inspection by Banking Inspection Department of the State Bank.
SBP said that banks are also advised to ensure that request for financing exports, otherwise eligible under the scheme and as per their lending policies, are not turned down or reduced on the grounds that the banks will not be eligible for refinancing to the extent of 100 percent of the value of export bill or entitlement of the exporters under Part-II.
Banks would also be required to ensure that their total financing for export purposes under the new arrangements does not fall below the ratio of their advances for exports to net advances as on end December 2006.
Banks are encouraged that this ratio be improved further to ensure that the growth in financing for export purposes matches with the target set for growth of exports each year. To monitor this banks would be required to submit to this department on monthly basis, borrower wise data as per the format attached herewith.
SBP said that all other instructions on the subject should remain unchanged. Banks are advised to properly and promptly circulate these instructions to their branches and constituents for meticulous compliance.