18 July 2004	Sunday	29 Jamadi-ul-Awwal 1425

KARACHI, July 17: The National Credit Consultative Council (NCCC) on Saturday set a Rs200 billion target for the private sector bank borrowing during the current fiscal year. The council in the last fiscal year had set Rs85 billion target for the private sector borrowing from banks but the actual borrowing exceeded Rs300 billion because of low interest rates.

The target set for the private sector credit in the fiscal year 2004-05 is part of this year's credit plan that the NCCC approved at a meeting held at the SBP headquarters. SBP Governor Dr Ishrat Husain was in the chair.

According to a press release issued by the SBP, Dr Ishrat stated that monetary policy had to be accommodative in the last few years in order to boost growth and alleviate poverty. He said that the only lever that was available with the SBP was the interest rate. Had the SBP increased the interest rates, "we would not have achieved the 6.4 per cent growth rate and the main effect would have been a slower expansion of the private sector credit, lower industrial growth and a much higher unemployment rate," he said. The expansionary monetary policy pursued during the last two years brought the lending rate down to an all time low of five per cent, he added.

But the most recent data released by the SBP on Saturday shows that weighted average lending rate of all the banks combined rose to 5.42 per cent at end-May 2004 from 5.07 per cent at end-April 2004.

The SBP chief said that low lending rates helped the private sector credit utilization to cross Rs300 billion mark against the indicative target of Rs85 billion. The credit utilization was broad based and half of the credit went to the manufacturing sector. Personal loans also increased by more than Rs60 billion, which will directly benefit the middle-income group. He claimed that despite the low interest rate environment, inflation edged up only marginally above the target of four per cent while core inflation remained below four per cent.

The most recent data shows that the Consumer Price Index inflation rose by 4.57 per cent in the last fiscal year against the initial target of 3.9 per cent.

The council was informed that the monetary expansion of Rs366 billion (17.6 per cent) during 2003-04 was mainly due to a substantial increase of Rs325 billion (21.1 per cent) in the net domestic assets (NDA) of the banking system against a decline of Rs4 billion in the corresponding period of last year. This huge build-up in the NDA of the banking system was due to the unprecedented increase in the private sector credit and somewhat higher than expected government borrowing from the banking system.

Government borrowings rose to Rs62 billion against a target of Rs10.6 billion because of pre-payment of $1.17 billion (Rs67 billion) to the ADB. Public sector enterprises continued to perform well and made a cumulative net retirement of Rs12.5 billion despite a borrowing of Rs20.6 billion by Parco to retire its foreign debt. The less than expected build-up in the net foreign assets (NFA), i.e., Rs41.5 billion was mainly due to the shortfall in net external inflows.

For the fiscal year 2004-05, the NCCC envisaged monetary expansion at 11.4pc (Rs280 billion) on the basis of GDP growth target of 6.4pc and inflation target of five per cent. Keeping in view the expected capital inflows and recent credit trends NFA of the banking system has been projected to grow by Rs30 billion, while the NDA of the banking system are projected to increase by Rs250 billion with the government borrowing for budgetary support and commodity operations limited to Rs45 billion and Rs5 billion, respectively.

The private sector is estimated to borrow Rs200 billion, while public sector enterprises and other financial institutions will retire Rs5 billion each. It was emphasized that the targets are indicative and all the genuine requirement of the private sector will be met. The credit plan will be presented in the SBP's Central Board of Directors meeting scheduled to be held in Lahore on July 21 for approval.

AGRICULTURE LOANS: Earlier, the Agricultural Credit Advisory Committee (ACAC) that also met at the State Bank headquarters under chairmanship of Dr Ishrat Husain, set a Rs85 billion target for disbursement of agricultural loans during this fiscal year.

The meeting, attended by all the commercial banks, Zarai Taraqqiati Bank Ltd, Punjab Provincial Cooperative Bank Ltd, the officials of federal and provincial governments, chambers of agriculture and other stakeholders, reviewed the agriculture credit during 2003-04.

Dr Ishrat Husain appreciated the impressive performance of commercial banks, particularly by five major banks, both in disbursement and recoveries of agriculture credit. This performance demonstrated that the revamped agriculture credit scheme have produced positive results.

The committee expressed its satisfaction that the total disbursement of agricultural credit during 2003-04 reached to the level of Rs73.6 billion, 12.2pc higher than the target of Rs65.5 billion and 24.8pc higher than the actual disbursement of the last year. Five major commercial banks disbursed Rs33.2 billion, ZTBL disbursed Rs29.9 billion, PPCBL Rs7.7 billion and domestic private banks Rs2.7 billion. The five major banks jointly achieved 148pc of their target and surpassed ZTBL, the traditional lender in the agriculture sector.

The committee also appreciated the efforts of all banks in reducing the mark-up rates in the range of 4-5pc on their agriculture financing and advised them to publicize this reduction as well as their other products introduced in agriculture credit. The representatives of the farming community termed the introduction of Revolving Credit Scheme as a revolutionary step that will empower the small farmers to make the repayments according to their own choice of timing.

They also welcomed the president of Pakistan's decision to take away the powers of arrest and detention of farmers from ZTBL. While discussing the SBP agricultural credit training programmes/field visits, the committee appreciated the efforts in this behalf and observed that these training sessions have proved very useful and be continued.

Regarding tractor financing, the committee observed that an amount of Rs6,277.8 million was disbursed for the purchase of 21,244 tractors during the year 2003-04 compared to Rs4,094.7 million for the purchase of 14,570 tractors during the same period last year, showing an increase of 53.2pc in amount and 48.5pc in the number of tractors financed.

While expressing its satisfaction over the performance of the agriculture credit disbursements, the committee suggested a target of Rs85 billion for the year 2004-05, i.e., 30pc higher than the target of the last year and 16pc higher than the actual disbursement during the year 2003-04.