KARACHI, Oct 22: The State Bank on Saturday issued a separate set of prudential regulations for agriculture financing to facilitate and encourage the flow of bank credit to the farm sector.
These prudential regulations, which will come into force immediately, have been finalized after extensive and intensive consultations with all the major stakeholders, particularly the banks.
The main objective of issuing these prudential regulations is to capture the peculiar characteristics of the agriculture sector’s production and marketing cycle and align it with the bank’s lending and borrower’s repayment cycles.
A major change in the new regulations is to enable the commercial banks to extend agriculture credit on the basis of future cash flows instead of relying solely on the collateral. Standard cash flows can be estimated for different crops in different geographical areas and these cash flows can then be adjusted for specific borrowers by trained credit officers of the banks/DFIs, keeping in view the quality of land, efficiency of the individual farmers, etc. This will not only facilitate expeditious decision making, but will also reduce subjectivity in the process of decision making, the SBP explained.
The central bank maintained that this important change in credit appraisal procedure would open-up bank financing for a large number of small farming households who have so far been denied access due to lack of adequate collateral.
The SBP has targeted that at least 3 million farm households out of total 6 million should have access to institutional agriculture credit by 2010. The new regulatory framework is intended to help achieve this target.
The central bank stated that the prudential regulations may be considered only as minimum standards and the banks/DFIs are advised to take sufficient measures to ensure that agricultural financing is undertaken in a prudent manner.
The banks/DFIs have also been asked to put in place an appropriate management information system to monitor the quality of agricultural finance portfolio on a continuous basis and take appropriate decisions at the right time.
“They have also been requested to diversify their agricultural finance portfolio in terms of geographical areas, types of financing, etc., to avoid the risks of concentration of credit and designate suitable, qualified and properly trained staff for this purpose.”
Keeping in view the national importance of agriculture sector, the State Bank expects banks/DFIs to take extra care in facilitating their borrowers.
SBP asked banks/DFIs to translate their application forms, check lists of all required documents and brochures in Urdu and other regional languages for better understanding of their customers.
It said it would, as always, keep a close liaison with all the stakeholders and will modify and update these Prudential Regulations whenever necessary.—APP
