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State Bank of Pakistan

SBP revises instructions for financing wheat procurement

KARACHI: The State Bank of Pakistan (SBP) has issued notification to revise instructions regarding bank financing for wheat procurement by the private sector.

The SBP issued circular No. 02 of 2021 for amending the instructions issued on March 19, 2021 for financing wheat procurement by the private sector.

Following amendments have been notified by the SBP:

I. For private sector participation in the wheat procurement season 2021, banks are required to strictly fulfill the following minimum conditions for extending financing to eligible borrowers (licensed and functional flour mills duly evidenced by some documentation or licensed wheat traders registered with concerned authority/department);

a. Fresh financing for procurement of wheat shall start from commencement of wheat procurement season 2021 in respective provinces. Banks will provide financing to eligible borrowers for the procurement of indigenous wheat for the harvest season of 2021 (April 01-June 30, 2021). The financing facility would be extended to the eligible borrowers for procurement of indigenous and imported wheat from July 01, 2021 subject to other conditions mentioned in this circular.

b. 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 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 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.

c. Banks will ensure that the subject financing will be used only for intended purposes. However, there is no restriction on banks for extending financing to flour mills for purpose other than procurement of wheat. Banks may provide financing to flour mills for general requirements like overhead expenses, however, banks will ensure that such financing is not used for procurement of wheat or to acquire wheat stocks/by-products of wheat.

d. Financing to private sector for procurement of wheat shall be provided against pledge of fresh wheat stock only and hypothecation / charge of moveable or immovable property would 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.

e. 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.

f. These loans will be fully settled on or before 31st March 2022, positively.

g. In order to curb the possibility of hoarding, banks shall:

i. require client(s) to disclose their storage location and verify the same.

ii. 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.

iii. be under obligation to immediately recall the advances allowed to the private sector in case of hoarding of wheat.

iv. ensure that no financing is allowed to client for retirement of loans availed from other banks.

v. 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.

h. The lending shall be in compliance with applicable laws, Prudential Regulations and other instructions of SBP issued from time to time.

II. Banks will submit a monthly statement in respect of financing to private sector for wheat procurement to this department as per attached format (Annexure-A) within ten working days from the close of the relevant month.

III. Any violation of the above instructions will attract administrative and/or penal action under the provisions of BCO, 1962 and other relevant laws.