KARACHI, Aug 11: National Bank has cut down the rate of markup on financing wheat procurement by Sindh Food Department for the growers from 5.75 per cent to 2.8 per cent.

Commercial and Retail Banking group of NBP head Shahid Anwar Khan told Dawn that his bank had agreed to finance wheat buying of Sindh Food Department for July-September 2003 at 2.8 per cent.

He said he could not quantify the amount of money to be lent to the department during this quarter. “Traditionally, the food department meets 31 per cent of its borrowing requirement from NBP and this time their total requirement is Rs2 billion,” he said. But he made it clear that the department is yet to convey to the bank the exact amount it would be borrowing from National Bank.

Sindh Food Department like its counterparts in other provinces finances purchase of wheat from growers through bank borrowing known as commodity operations. Under commodity operations banks finance purchase of agricultural commodities and fertilizers, etc., by provincial departments as well as state-run organizations.

Sindh Food Department secretary Ameer Ali Burq told Dawn that his department had convinced banks to lower the markup rates for financing wheat procurement as part of its strategy to keep its financial health in shape. “Since banks are flooded with excess liquidity they agreed to cut down the rate substantially — from 5.75 per cent to 2.75-2.80 per cent,” he said. A senior official of the department said in July-September this year the department would seek commodity financing from Allied Bank and National Bank, adding that the former would charge a markup of 2.75 per cent and the latter 2.8 per cent. He said the department was likely to meet 80 per cent of its borrowing requirement from ABL and 20 per cent from NBP.

Sindh has set a wheat procurement target of half a million tons for 2003, and it has so far procured more than 300,000 tons. Officials of the food department and bankers say the rates for commodity financing would be revised on quarterly basis.

Shahid Anwar Khan of NBP said his bank was busy negotiating new markup rates with the food departments of other provinces also adding that new rates would soon be finalized.

The banks involved in commodity operations are free to charge a maximum markup of 5.75 per cent and the State Bank has so far not revised this limit. The fact that the banks have agreed on their own to lower this rate below three per cent shows how desperate banks are getting in employing their surplus funds.

Bankers say the markup fixed by the State Bank for financing commodity operations has always served as a ceiling meaning that they have never been refrained from charging a markup lower than the ceiling fixed by the SBP.

But this is for the first time that banks are willing to provide commodity financing at a rate much lower than the ceiling fixed by the central bank.

Apart from the fact that banks have been wallowing in excess liquidity for quite some time on the back of rising inflows through exports and home remittances what else has forced banks to lower their commodity financing rate is the inclusion of local private banks in this business. Earlier only five major banks — National Bank, United Bank, Habib Bank, Muslim Commercial Bank and Allied Bank — used to finance commodity operations. But now about a dozen local private banks are also taking part in commodity operations.

But senior bankers say most private banks with much smaller branch networks than those of the big five banks confine themselves to commodity financing in urban areas leaving the bulk of the business in the rural areas of the big five banks. And National Bank having its branches in the remotest parts of the country finds it feasible to finance wheat procurement of food departments and procurement of other commodities by state-run bodies much easier.