KARACHI, Oct 30: The State Bank on Tuesday formulated its Mark-up Rate Subsidy Scheme for spinning sector which will provide three per cent mark-up rate subsidy to the spinning mills.

The government has announced mark-up rate subsidy of three per cent to spinning mills on their outstanding running balances of principal amount of floating rate loans availed by the industry from commercial banks or DFIs for financing of import machinery.The scheme rate cut is effective from July 1, 2007.

This facility will be administered by the commercial banks and DFIs that will effectively lower the mark-up rate by three per cent on outstanding balance of advances granted to spinners for the period of subsidy.

According to the subsidy scheme finalised by the State Bank, the subsidy will be admissible on the principal amount of loans outstanding on reducing balance basis during each six monthly period ending on Dec 31, 2007, and on June 30, 2008.

The loans disbursed by the banks or DFIs during the period (July 1, 2003 to June 30, 2007) will qualify for the facility, said the SBP.

The LCs which have been established during this period for import of plant and machinery, will also qualify for the subsidy provided these LCs are retired during 12 months period admissible for payment of subsidy.

The subsidy will be admissible against long-term loans extended for import of spinning mill machinery, excluding the machinery used in the six sub-sector / processes of the spinning (doubling, twisting, slubbing, combing, lycra and yarn dyeing).

The outstanding loans in respect of imported machinery, including six processes of spinning sector, for which borrowers have availed State Bank’s debt swap facility are not eligible for this subsidy.

No subsidy will be admissible on the amount of loan disbursed for meeting import incidentals. The subsidy will be admissible only on the outstanding principal amount of loans availed on the C&F value of the imported spinning machinery, excluding machinery for six sub-sector or process.

The amount of subsidy will be paid by commercial banks or DFIs on six monthly basis in January 2008 and July 2008.

The subsidy amount will be paid by the commercial banks or DFIs to eligible borrowers on six monthly basis at their respective branches.

Once subsidy payment is made by banks or DFIs, the disbursing branch of banks and DFIs will seek reimbursement of the three per cent mark-up rate subsidy per transaction from the concerned offices of the SBP-BSC.