SBP imposes 50 percent cash margin on loans to sugar mills

Tuesday, February 10, 2009



Share this story!
SBP imposes 50 percent cash margin on loans to sugar mills

By Mushfiq Ahmad

KARACHI: State Bank of Pakistan has imposed minimum cash margin of 50 percent on all renewals/fresh disbursements of financing facilities against sugar stock. It said through a circular on Monday that the banks/DFIs shall not finance the cash margin themselves.

The State Bank announced a number of other measures to discourage hoarding of sugar. It said that all existing loans / advances against the security of sugar stock (disbursed before the crushing period of 2008) shall be fully adjusted latest by March 31, 2009. Furthermore, loans / advances against fresh stock (disbursed after start of crushing period 2008) shall also be fully adjusted latest by July 31, 2009. Any renewal / fresh disbursement of such loans / advances shall be made only after a clean up period of at least one month after the adjustment of loan. No fresh financing / renewal will be allowed against hypothecation of sugar stocks.

Banks / DFIs will monitor the position of pledged sugar stocks and ensure that the release of pledged stock should result in corresponding reduction in outstanding loans / advances. The instructions shall, however, not be applicable to financing facilities provided to Trading Corporation of Pakistan. All banks/DFIs shall submit the position of their outstanding loans / advances against sugar stock on fortnightly basis to the central bank within three days of the end of each fortnight to enable it to monitor the situation. A sugar miller said mills would not be able to make payments to farmers as a result of this step. He said the industry is not to be blamed for the shortage of sugar. It was the middleman who was creating shortage in the market, which led to price hike, he said. He said mills were still selling sugar at Rs 33 per kilogramme. He said the government should abolish Rs 5 per kg sales tax, if it really wanted sugar to be available to consumers at low prices.

He said the sugar industry had suggested raw sugar import in November, but the government paid no attention to this proposal. Besides, he said, a substantial quantity of sugar was smuggled to Afghanistan in the garb of gur export. Had the government banned export of gur, there would have been no shortage of sugar, he said.