March 4, 2003	Tuesday	Zul Hijjah 30, 1423

KARACHI, March 3: Flour millers in Sindh are facing difficulty in getting loans from banks to buy wheat from the growers. Many of them say if they fail to get loans on time they will be forced to buy lesser than required wheat—and that will hit the growers as well as slow offtake of the commodity can depress its prices.

“Banks are refusing wheat loans on one pretext or the other— particularly in Sindh,” laments a leading local flour miller. The miller who produces a very popular brand of wheat flour claims he has written 30 letters to a number of banks requesting for wheat loans but none of them has responded positively. “In most cases the banks just do not bother to reply...and the one or two that say they are willing to give loans are still demanding 10 per cent markup,” the miller complains. “The situation in NWFP is not much different,” he said quoting some colleagues based in Peshawar. “But in Punjab banks are quite willing to lend to wheat millers.”

Senior bankers admit that disbursement of wheat loans in Sindh and NWFP is somewhat lower than in Punjab. But they do link it to a relatively low demand for wheat loans in the smaller provinces.

“There is not much demand in Sindh and NWFP,” said one senior executive of a big privatized bank. “In some cases the borrowers do not meet certain criteria one of them being a desirable ratio of the loans being sought and their own liquid assets,” he said.

Flour millers say wheat procurement in Sindh has just started and the province has produced a crop of 2.7-3.0 million tons. They say the market price of wheat is Rs 800 per 100 kg including the cost of gunny bags and transportation from wheat producing areas to Karachi. This price is almost equal to the government support price of Rs 750 per 100kg without gunny bags and minus transportation cost.

Chairman of All Pakistan Flour Mills Association Sufi Bilal said the Association had lately approached the State Bank with the request to facilitate the millers to get wheat loans at the rate applicable on public sector commodity financing. “The central bank has replied that banks are free to lend to the millers at whatever rates they can negotiate with their borrowers,” Sufi Bilal said when reached by Dawn over telephone.

On February 15 this year, the SBP cut the markup on the public sector commodity financing from 12 to 9.5 per cent. The circular issued to notify this decision (BPD no 14) had also made it clear that the banks may provide wheat financing to the private sector “on a market-based rate of markup linked with T-bills rate.”

Flour millers had hailed this decision hoping that banks would substantially lower the markup on wheat financing as the T-bills rate is around 3.5 percent—and even if they add the same spread on it wheat loans should be priced at 7 per cent. Earlier wheat millers were getting loans from banks to buy wheat or construct wheat storage houses at different rates ranging from 9-4 per cent.

“We will consider giving wheat loans at a cheaper rate but one should not speculate on how much spread a bank would charge above the T-bills rate,” said a senior executives of one of the five local major banks. “The T-bills rate is referred to (by SBP) for benchmarking markup on commercial loans only to stress the point that the loan should be priced in line with the market situation. It would be too much to expect banks to reduce markup on wheat loans to X level across the board.” Bankers say they continue to price loans keeping in view the borrowers ability to repay and other risks involved.

But they do admit that with excessive liquidity available in the banking system not only wheat millers but other borrowers would be getting loans at a cheaper rate.

“This does not mean that the party that used to get a certain loan at 14 per cent would now get it at 7 per cent. The markup rates naturally differ from borrower to borrower—and from bank to bank,” the banker explained.

But flour millers in Karachi banks are generally not willing to lend to them—the issue of markup not withstanding. “We are willing to pay even more—maybe upto 9-10 per cent but the point is many banks seem little interested in disbursing wheat loans,” complained a local flour miller. The statement can hardly be termed as over-generalization of a fact because the relevant officials of two out of five major local banks were not even aware of the February 15 circular of SBP on the issue of wheat financing in the private sector.