The State Bank of Pakistan on Friday announced reduction in minimum cash margin by 15 percent for wheat procurement financing of the fresh crop 2009. With SBP''s current move, the licensed functional flourmills can acquire financing after meeting the minimum cash margin requirement of 10 percent of the value of the wheat stock for the fresh crop of 2009, instead of 25 percent margin for the last wheat crop 2008.
Current year the government expects a bumper crop of 24-25 million tons and SBP''s move would help to provide a better price to the grower. The SBP has also instructed banks not to provide any financial facilities (funded or non-funded) to enable borrowers to meet the margin requirements.
In addition, the central bank also enhanced the retirement period of wheat advances by one month from December to January. During the last season December 31, 2008 was the due date for the retirement of wheat advances. But, this year borrowers are allowed to retire financing till January 31, 2010.
However, the SBP has instructed banks to make sure that wheat financing should not be used for wheat hoarding and banks immediately should recall the advance under wheat procurement in case of hoarding of wheat by the functional flourmills.
SBP on Friday conditionally directed banks to provide financing facilities to their eligible borrowers--only licensed functional flour mills--strictly for procurement of indigenous and fresh wheat crop 2009. SBP said that with a view to ensure participation of the private sector in the wheat procurement during the wheat procurement season 2008-09 banks will continue to provide financing facilities for wheat procurement.
"Executing financing agreement by the banks with their borrowers, banks will clearly spell out that loans can be recalled before agreed repayment or due date when it is deemed necessary to curb hoarding", SBP said. Banks will also ensure that no financing is allowed by them to the flour mills for retirement of the loans availed from other banks.
The banks will ensure that the financing facilities extended to their borrowers are strictly utilised for the purpose for which they have been granted and 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, the central bank said. "These loans will be repayable on or before 31st January 2010 positively and non-compliance of the requirement regarding adjustment of loans disbursed during the year 2008 would make the prospective borrowers disentitled to avail financing for procurement of wheat during 2009."
As per SBP conditions, fresh financing to the eligible borrowers for procurement of wheat during 2009 shall start from commencement of wheat procurement season 2009 in respective provinces. Banks will provide financing facilities against pledge of fresh wheat stock only, and shall not extend funds to the private sector for procurement of wheat against hypothecation/charge of moveable or immovable property, SBP said.
Banks 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 SBP added.
Banks will not entertain any application for grant of fresh loans after 30th June, 2009 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 2009 and respective Food Department against supply of wheat by them.
SBP has instructed banks that quantum of such loan shall not be more than the value of wheat to be supplied by the respective Food Department or actual purchase from wheat traders, commensurate to the milling capacity of each mill. Banks will also monitor that existing stock of wheat purchased by the concerned functional flourmill has been grinded and that the by-products of wheat viz. flour, maida, sujee, etc, (financed against bank loan) have also been released to the market gradually to repay the loans so obtained.
Financing against by-products of wheat shall also be subject to the cash margin of 10 percent. Banks are also allowed to provide facilities for wheat procurement by the seed processing plants, in line with their lending policies and the capacity/production plans of the seed processing plants. However, banks may ensure that such stock of wheat will be used for processing purposes, the SBP said.
Banks will ensure that no revaluation of the pledged stock is considered for release of any differential amount to the borrowers against stock of wheat pledged with the banks.
The central bank said that banks should ensure that weekly stock report for the wheat held by functional flourmills and pledged with the bank is inspected periodically. Report on the inspection should be submitted regularly to this department, within 07 days from the close of the month to which it relates, indicating the name of the party, location of its godown etc as per prescribed format.
The SBP would also verify the authenticity/genuineness of such inspection reports through its Banking Inspection Department. Banks will also ensure that the wheat stock is gradually released to generate cash resources for the purpose of repayment of bank loan.
Banks shall continue to submit a weekly statement in respect of financing to private sector for wheat procurement as per prescribed format within seven days from the close of the relevant week. Delay in submission and / or misreporting of data to SBP will attract penal action under BCO, 1962.
The lending shall be in compliance with the Prudential Regulations and other instructions of SBP issued from time to time, the SBP said, and added that any violation of SBP instructions would attract penal provisions under BCO, 1962.