KARACHI, May 19: Prime Minister Mir Zafarullah Khan Jamali is going to tell top bankers on Tuesday that it is time for them to reach out to agricultural borrowers. He is going to assure them that the government will take all steps to ensure that farm loans do not get stuck up.

The State Bank has summoned heads of all banks and development finance institutions under its control for a meeting with the prime minister at its head office on Tuesday afternoon.

Top bankers contacted by Dawn said the agenda of the meeting was not known. Some of them close to the PM secretariat said Mr Jamali would most likely raise the issue of agricultural lending. Banks are currently flooded with surplus liquidity. They have lately started using a major chunk of it to finance the corporate and consumer sector credit demand, but the agricultural sector is not getting as much bank credit as it should.

“Recovery of agricultural loan is a real headache for banks,” says head of a commercial bank involved in agricultural lending. But he says that not only his bank but other banks as well have lately increased agricultural lending and are keen to lend even more to farmers if the government removes the legal bottlenecks in recover of loans.

Bankers say the prime minister is also likely to raise the issue of falling returns on bank deposits, but they say that banks cannot do much to stop the slide of the deposit rate. “When the lending rates keep going naturally the banks have to readjust the deposit rates as well,” said head of a local bank, but he admitted that with the weighted average lending rate having gone down to 2.81 per cent in March “further slashing would create problems.”

Treasurers of local and foreign banks say return on deposits may fall further as every bank continues to make room for further lowering its lending rates to get more business than its rivals.

Top bankers say the prime minister may also highlight at the meeting the need for further exploring the consumer finance market, besides continuing to finance the corporate credit demand at low rates.

The bankers say they may cease the opportunity to tell the prime minister that the treasury bills rates have seemingly bottomed out and the State Bank should now ensure that the rates do not fall further.

“Because if the T-bills rate continue to slide our margins will continue to fall even if we invest in T-bills only for the purpose of keeping statutory liquidity reserves,” said head of a foreign bank. Banks are supposed to keep 15 per cent of their total deposits as SLR.

The cut-off of one-year T-bills at 2.61 per cent is lower by 20 basis points the weighted average deposit rate. Or the one- year T-bills are offering a negative return to the banks. Just as the 2.81 per cent average deposit rate means a negative return for the savers because consumer inflation was 3.39 per cent in March.

Executives of leasing and modarabas sector told Dawn that some representatives of the Leasing Association of Pakistan and the Modarabas Association of Pakistan had also been summoned by the SBP to attend the meeting with the prime minister. But they said they had no idea of what issues would be discussed there.