KARACHI, Nov 20: Banks will provide credit to flour millers for procurement of wheat at 12 per cent mark-up under commodity operations.

This decision was taken at a meeting held here on Tuesday under the chairmanship of the State Bank Governor Dr. Ishrat Husain.

According to an SBP press release the meeting was attended federal food secretary Hafeez Akhtar; SBP deputy governor Tawfiq A Husain; top executives of five major banks namely National Bank, Habib Bank, United Bank, Muslim Commercial Bank and Allied Bank and office-bearers of Pakistan Flour Mills Association.

The meeting was convened to ensure that the transition of procurement of wheat by the private sector is accomplished smoothly without causing any inconvenience to the consumers.

The SBP press release said the meeting took the following decisions:

1. Banks will provide credit to the private sector/eligible flour mills for wheat procurement under commodity operations at 12 per cent mark-up.

2. In order to assess the credit risk the banks would have a direct interaction with the borrowers, and the Flour Mills Association would ensure cooperation in this regard so that banks are able to complete their credit appraisal process and legal documentation required for this purpose.

3. The meeting noted that the storage capacity for wheat is inadequate and as such it needs to be enhanced. For this purpose it was agreed that banks would provide adequate funds for 5-7 years for the construction of silos and other structures that can serve as a storage area for wheat at a debt:equity ratio of 60:40 at normal lending rates.

The banks would ensure that the transactions are viable and their exposure is secured adequately. The ministry of food would help standardize models for construction of storage facilities of various sizes and types making it possible for banks to concentrate on mitigating the credit risk.