KARACHI, Oct 30: State Bank Governor Dr Ishrat Husain has said that a bankruptcy law has been prepared and is in the process of approval.

He was talking to a delegation of the All Pakistan Textile Mills Association (Aptma) led by its chairman M. Waqar Monnoo at the State Bank here on Thursday.

The SBP governor was of the view that Pakistan should first pursue the progress model of China and then follow countries like the United States. “Laws take longer to implement as they must now be routed through the cabinet and the legislative bodies.”

He said even though time taken was longer, the laws were better as they had gone through the debate process.

Aptma chairman apprised the SBP governor about a crisis-like situation faced by textile mills in view of the extraordinary increase in cotton prices.

He also informed the SBP governor about the liquidity issues being faced by textile industry and proposed a reduction in margin on stock of raw materials and finished goods by banks.

The banks are currently financing cotton in pledge against net of sales tax value and keeping an additional 10 per cent margin on top of that. The result is that, the borrower ends up paying 25 per cent of the value out of his pocket to purchase cotton, which will be pledged.

Mr Monnoo proposed that the banks allow financing against pledge on the basis of five per cent margin on raw material, i.e., cotton and polyester fibre and 10 per cent margin on finished goods. The revised prudential regulations allow lending against raw materials at nil margin.

The SBP governor said he would look into the issue on a temporary basis to cover the present extraordinary situation.

The Aptma delegation apprised him that the banks, in general, were not financing higher-grade cotton purchased at premium prices. This was resulting in funding the additional premium by the buyers of higher grade cotton.

It was suggested that the banks be instructed to finance higher grade cotton as per premium stated in KCA published rates. The governor was informed that with cotton prices having increased extraordinarily it was resulting in shortage of working capital and that the banks should accommodate increase in working capital.

Dr Ishrat promised to take up the matter with the banks in the forthcoming PBA meeting scheduled for November 7.—APP