The retirement of loans under commodity operation picked up sharply as the procurement agencies retired Rs 59.60 billion in July-January period of current fiscal year 2010-11. Sources in banking sector told Business Recorder on Friday that a key development was witnessed in banking sector as a massive retirement of commodity financing was made by government owned procurement agencies and other borrowers.
Retirement under commodity financing surged to Rs 59.6 billion during first seven months of current fiscal year as compared to Rs 20.5 billion in same period of last fiscal year, posting a surge of 190 percent. With the current retirement, the outstanding stock of commodity operation narrowed down to Rs 353.6 billion in January 2011 as compared to Rs 413.191 billion on June 30, 2010.
Breakup shows that Rs 26 billion was retired in first quarter, Rs 23.9 billion in second quarter, and Rs 9.7 billion in January 2011. Sources said that the bulk of the retirement was in wheat advances by provincial departments and Pakistan Storage and Supply Corporation (Passco) and other provincial procurement agencies, whereas outstanding paddy advances also recorded a fall during the period.
The outstanding stock of wheat loans alone was reduced by Rs 52.3 billion in first half of fiscal year 2010-2011. This was primarily due to a sharp retirement by Punjab food agency during the last few weeks of the period under review as it off-loaded procured stocks in the market. In addition, by December 2010, the TCP also reduced its loans to almost half the level of Jun 2010 and this was made possible with the receipts of sales proceeds.
Meanwhile, in paddy advances, Passco began retiring its loans by offloading previously procured stock at a higher market price. However, despite the overall retirement in commodity financing, advances against sugar, mainly for import, remained higher during the period as compared to the same period of last year. Sources said that stocks of wheat procured in last two years 2009-2010 are still lying in the stores of Passco and provincial food departments, which are expected to offload in the next one or two months as the government has allowed export of surplus commodity.
For the coming season the government has announced to procure 6.5 million tons of wheat. However, before new procurement, Passco and food departments have to offload already stocked wheat due to short capacity of storage. Therefore, presently Punjab food department and other provinces have put their stocks for exports and get good response from exporters due to rising international price as well as demand. Export of wheat has already started and exporters have finalised deals of about 0.8 million tons.
"During the last fiscal year, procurement authorities including Passco could not reduce this huge debt on their own, mainly due to the non-materialisation of price differential subsidies from the government", sources said, adding that government move to export surplus commodity will help to offload last year''s procured wheat.
It may be mentioned here that the outstanding stock of commodity finance was expanded by Rs 77 billion in fiscal year 2010 as compared to a rise of Rs 209 billion in fiscal year 2009 and most of the contribution in this lower expansion of commodity operations came from lower disbursements made under wheat advances, as Passco and provincial food department have already enormous wheat stocks procured during the fiscal year 2009.