SBP asks banks to finance only fresh wheat procurement

KARACHI: The central bank has advised banks to ensure that private sector uses financing strictly for the purpose of wheat procurement from domestic sources and new harvest.

In guidelines issued on the eve of wheat harvesting, the State Bank of Pakistan (SBP) said banks are required to strictly fulfill the minimum conditions for extending financing to eligible borrowers (licenced and functional flour mills duly evidenced by some documentation or licenced wheat traders registered with concerned authority/department for private sector participation in the wheat procurement season 2021.

“Banks will provide financing to eligible borrowers only for the procurement of indigenous wheat for the harvest season of 2021,” the SBP said in a latest statement. “Special efforts shall be made to ensure that the facilities availed for purposes other than wheat procurement are not utilised for financing of wheat stocks.”

Fresh financing for procurement of wheat will start from commencement of wheat procurement season 2021 in respective provinces. Financing against wheat and by-products of wheat viz. flour, meada, and sujee will be subject to minimum cash margin requirement of 10 percent of the value of the wheat stock and by -products. “Banks shall not provide any financing facilities (funded or non- funded) to enable borrowers to meet the margin requirements.”

Financing to private sector for procurement of wheat will be provided against pledge of fresh wheat stock only and hypothecation / charge of moveable or immovable property will not be acceptable as collateral for such financing. Moreover, banks will ensure that no revaluation of the pledged stock is considered for release of any differential financing amount to the borrowers against stock of wheat already pledged with the banks.

Banks will not entertain any application for grant of fresh loans after 30 June, 2021 for procurement of wheat. However, banks may provide financing facility to functional flour mills for purchase of indigenous wheat from their authorized representative and respective food department against supply of wheat by them. Quantum of such loan will 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 flour mill, has been grinded and that the by-products of wheat (financed against bank loan) have also been released to the market gradually to repay the loans so obtained.

Banks are also allowed to provide financing facilities for wheat procurement by the seed processing plants duly evidenced by the testing certificates issued by the Federal Seed Certification and Registration Department, in line with their lending policies and the capacity/production plans of the seed processing plants ensuring that such stock of wheat will be used for processing purposes

These loans will be fully settled on or before 31st January 2022. In order to curb the possibility of hoarding, banks will require client(s) to disclose their storage location and verify the same, and strictly monitor the wheat stock held by the client vide periodical and random inspections of wheat pledged with the bank as well as the gradual release of wheat stock to generate cash for the purpose of repayment of bank loan. SBP may acquire stock reports from banks to verify their authenticity/genuineness as and when desired. Banks are also asked to immediately recall the advances allowed to the private sector in case of hoarding of wheat, ensure that no financing is allowed to client for retirement of loans availed from other banks and ensure that their clients are in strict compliance with the guidelines of respective government (federal/provincial) for release of wheat stock and are not involved in any other activity which may cause speculation of wheat/flour price in market. The lending will be in compliance with applicable laws, prudential regulations and other instructions of SBP issued from time to time. Banks will submit a monthly statement in respect of financing to private sector for wheat procurement to this department within 10 working days from the close of the relevant month.

“Any violation of the above instructions will attract administrative and/or penal action,” said the SBP.