Banks asked to adjust loans given against sugar stocks

KARACHI: In order to discourage sugar hoarding, State Bank of Pakistan (SBP) on Monday instructed banks to fully adjust all existing loans, which were disbursed before the crushing period of 2008, latest by March 31, 2009. The loans were made against the security of sugar stocks.

It also said the loans against fresh stock that were disbursed after the start of crushing period should also be adjusted by July 31.

“Any renewal or fresh disbursement of such loans shall be made only after a clean up period of at least one month after the adjustment of the loan,” it said, adding that new financing facilities shall be subject to a minimum cash margin of 50 per cent.

It said the banks or development financial institutions shall not finance the cash margin themselves. “No fresh financing or renewal will be allowed against hypothecation of sugar stocks.”

Banks have also been asked to monitor the position of pledged sugar stocks and ensure that the release of pledged stock should result in corresponding reduction in outstanding loans. However, these instructions shall not be applicable to financing facilities provided to Trading Corporation of Pakistan.

“In order to enable State Bank to monitor the situation, all banks/DFIs shall submit the position of their outstanding loans/advances against sugar stock on fortnightly basis.”

Sugar millers urge govt to withdraw 50pc cash margin: Powerful sugar millers have requested the government to withdraw State Bank of Pakistan’s order imposing a cash margin of 50 per cent against the pledge of sugar with banks, Jawwad Rizvi adds from Lahore.

The SBP issued BPRD Circular No 2 to all banks and development finance institutions (DFIs) instructing them to enforce 50 per cent cash margin against pledge of sugar in an attempt to discourage and curb sugar hoarding due to which the sweetener’s price has gone artificially high.

After the issuance of the circular, the Chairman of Pakistan Sugar Mills Association (PSMA) Punjab Zone, Javed Kayani stated that the SBP should immediately withdraw the circular.

Highlighting the problems faced by the industry, he said it was difficult to offload sugar produced over a period of 12 months in just three months from the date of close of the crushing season. According to the circular, the stocks are to be cleared by July 31, which he said is impossible because sugar is sold on day-to-day basis according to the requirements of the market.

Javed Kayani said the amount borrowed against pledge of sugar is utilised for making payments to growers and under the present situation, the existing condition of 25pc margin is hard to meet because production capacity is not fully utilised due to serious shortages of sugarcane.

During this period, he said, the growers have been demanding cash payments for their sugarcane and non-payment could leave the millers without sugarcane “which is very alarming at this stage.”

The sugar industry is about to complete the crushing season and it would be very difficult to clear payments of growers, he said, adding that the perception of State Bank and the government about hoarding of stocks is incorrect as the cost of production is driven by prevailing sugarcane prices, which are hovering around Rs150 per 40 kg.

“The major component in the production cost of sugar is the value of sugarcane and the industry is neither hoarding nor deliberately trying to manipulate prices as cost-push factors are beyond our control,” he said.

Kayani forecasted that if the SBP did not withdraw the circular then banks’ non-performing loans would further increase. He said the SBP should not be hostile towards the sugar industry.

He said the sugar industry should not be held responsible for non-availability of raw material at the government’s support price and SBP should follow business friendly policies as the investment climate in the country is already at its worst. He said the industry greatly contributes towards the national exchequer in terms of taxes to the tune of billions of rupees while employing millions of people.

The government should protect the interests of the industry in order to foster an environment for the betterment of business. Such circulars issued in isolation without taking stakeholders into confidence would mean annihilation of the industry.