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KARACHI, Jan 23: State Bank Governor Dr Shamshad Akhtar has underscored the need to develop and deepen the fixed income securities market to offload credit pressure on commercial banks for long-term corporate financing. She expressed her concern over the rising banking spread and emphasized the need for shifting some benefits to depositors in the wake of rising lending rates.
The SBP governor was presiding over a mid-term review meeting of the National Credit Consultative Council (NCCC) held here on Monday. The council reviewed the monetary and credit developments during the first six months of FY06, says a press release.
Dr Akhtar reiterated SBP’s commitment to ensure adequate availability of funds to SME and other priority sectors of the economy. While commenting on issue of subsidized credit for export refinance, she was of the view that the key issue was to have an access to credit to boost exports rather than the price of credit because the price of credit was market determined.
Dr Akhtar also desired to enhance the scope of NCCC meetings and informed the council that these meetings would be held well before the issuance of six-monthly monetary policy statement (MPS) in order to consider views/feedback from both the banks and private sector for policy decisions.
The council was informed that the broad money showed a growth of 7.9 per cent (Rs236 billion) during July-December 2005 compared with the credit plan target of 12.8 per cent (Rs380 billion) and actual growth of 9.8 per cent (Rs244 billion) in the same period last year. The broad money growth stemmed from the enormity of private sector credit offtake (Rs297.6 billion) and sizable government borrowings for budgetary support (Rs78 billion) despite depletion in the net foreign assets of the banking system.
The council was informed that the distribution of credit to the private sector was broad based and reflected growing confidence of the business community due to consistency of policies, ongoing expansion in industrial base of the country, growing working capital requirements, particularly in textile and cement industry. The credit to the SME sector continued to expand and increased by Rs30.9 billion during July-November 2005.
While elaborating on future outlook of monetary and credit developments, Dr Akhtar stated that although the bank credit to the private sector was likely to exceed the credit plan indicative target of Rs330 billion, broad money expansion by the end of the current fiscal year may be close to the credit plan target of 12.8 per (Rs380 billion) primarily due to expected improvement in the budgetary position of the government.
ACAC MEETING: Dr Shamshad Akhtar on Monday presided over another meeting of the Agricultural Credit Advisory Committee (ACAC) to review the flow of credit to the agriculture sector during the first six months of the current fiscal year.
The committee expressed satisfaction that the growth momentum in agriculture credit disbursement achieved during the last two years was maintained in the first half of the current fiscal year (July-Dec 2005), as banks disbursed Rs62 billion to this sector, which is 25 per cent higher than the disbursement of Rs49.5 billion made in the corresponding period last year.
The five big banks, as a group, disbursed Rs33.5 billion, while ZTBL, domestic private banks and PPCBL disbursed Rs19.303 billion, Rs7.1 billion and Rs2 billion, respectively.
The ACAC noted with satisfaction that major portion of the credit i.e. 68 per cent went to small farmers, whereas the medium and big farmers received 23 per cent and nine per cent, respectively, of the total credit disbursed during the first half of the current fiscal year. Livestock, dairy farming and poultry received 11 per cent as against the target of eight per cent.
The committee expressed the hope that the banks would take necessary steps to further accelerate the pace of credit disbursement to the agriculture sector during the next six months so that the full year target of Rs130 billion could be achieved comfortably.
The SBP governor stressed upon the banks to formulate a long-term vision and strategy to develop agriculture finance as a business line. She said that the sector promised opportunities for diversification, attractive returns both to the banks and the economy, and had enormous growth potential as the existing outreach of institutional credit to the sector was just 15 per cent of the total potential market of about 6.6 million rural households.
She said that a strategy would be developed in consultation and collaboration with the banks and other stakeholders to increase the outreach of institutional credit to 50 per cent, or 3.3 million rural households, during the next 3-5 years as envisioned by the committee in its last meeting held in July 2005.
Dr Akhtar also emphasized upon the provincial governments to ensure speedy issuance of passbooks to the farmers to enable them to avail bank credit.
