SBP asks banks to only finance purchases of fresh wheat

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

In guidelines issued on the eve of the wheat harvest, the State Bank of Pakistan (SBP) stated that banks are required to strictly meet the minimum conditions for providing financing to eligible borrowers (licensed and functioning flour mills). duly attested by certain documents or licensed wheat traders registered with the relevant authority / department for private sector participation in the 2021 wheat supply campaign.

“Banks will provide financing to eligible borrowers only for the purchase of native wheat for the 2021 harvest season,” the SBP said in a final statement. “Special efforts will be made to ensure that facilities made available for purposes other than the supply of wheat are not used to finance wheat stocks. “

New funding for the purchase of wheat will begin as soon as the 2021 wheat purchase season begins in the respective provinces. Financing against wheat and wheat by-products viz. flour, meada and sujee will be subject to a minimum cash margin requirement of 10 percent of the value of the inventory of wheat and by-products. “Banks should not provide any funding facility (whether or not funded) to allow borrowers to meet margin requirements. “

Financing to the private sector for the purchase of wheat will be provided against pledging of fresh wheat stock only and the mortgage / charge of movable or immovable property will not be acceptable as collateral for such financing. In addition, banks will ensure that no revaluation of the pledged stock is considered for the release of any amount of differential financing to borrowers compared to the stock of wheat already pledged with banks.

Banks will not accept any request for new loans after June 30, 2021 for the purchase of wheat. However, banks may provide financing facilities to functioning flour mills for the purchase of native wheat from their authorized representative and the respective food service against the supply of wheat by them. The amount of this loan will not be greater than the value of the wheat to be supplied by the respective food department or the actual purchase from the wheat traders, depending on the grinding capacity of each mill. Banks will also monitor that the existing stock of wheat purchased by the relevant functional flour mill has been crushed and that the wheat by-products (financed by a bank loan) have also been gradually released to the market to repay the loans thus obtained.

Banks are also authorized to provide financing facilities for the purchase of wheat by seed processing factories duly attested by test certificates issued by the Federal Department of Seed Certification and Registration, in accordance with their policies. loan and capacity / production plans of seed processing plants ensuring that this stock of wheat will be used for processing

These loans will be fully settled by January 31, 2022. In order to limit the possibility of hoarding, banks will require the customer (s) to disclose and verify their storage location, and to strictly monitor the stock of wheat held by the customer empty periodic and random inspections of the wheat promised to the bank as well as the gradual release of the wheat stock to generate liquidity for the repayment of the bank loan. SBP can acquire stock reports from banks to verify their authenticity / authenticity as and when required. Banks are also urged to immediately recall advances to the private sector in the event of wheat hoarding, to ensure that no financing is authorized to the customer for the repayment of loans from other banks, and ensure that their customers strictly adhere to the respective government (Federal / Provincial) guidelines for the release of wheat stocks and do not participate in any other activity that may cause wheat / flour price speculation in the market. The loan will comply with applicable laws, prudential regulations and other SBP instructions issued from time to time. Banks will submit a monthly statement regarding financing to the private sector for purchasing wheat from that department within 10 working days of the end of the relevant month.

“Any violation of the above instructions will result in administrative and / or criminal prosecution,” the SBP said.

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