ZTBL to raise mark-up rate on loans to farmers

The Zarai Taraqiati Bank (ZTBL) has reportedly decided to increase mark-up rates on loans being given to farmers across the country, sources close to President ZTBL told Business Recorder. Zaka Ashraf, whose tenure expired last month, has been given extension for indefinite period, according to an official of Finance Ministry.
Official documents show that the Government of Pakistan (GoP) ad announced during the budget 2004-05 that ZTBL would charge lower mark-up rate, from 14percent to 9 percent, with 1 percent rebate, on prompt payment on all types of loans and financing of tractors and tube-wells for agriculture sector. The GoP would pick up the differential of mark-up on this account. The mark-up rate was not finalised. However, ZTBL is regularly lodging its claims with 6 percent differential in mark-up for reimbursement since July 1, 2004, which accumulated to Rs 22.293 billion as on 31-12-2010. The GoP has so far not released any funds to ZTBL on this account.
The Bank has now submitted that when the mark-up rate was reduced in 2004, T bills rate was 2-3 percent, which now is 13 percent. In addition, changes in various financial indicators resulted in upward trend in cost structures, which further increased cost of doing business, on the one hand, and increased credit requirement of farming community, on the other.
The low mark-up rate did not help the Bank generate sufficient resources to meet the ever-increasing demand of agriculture sector and servicing of SBP's debt of Rs 77.271 billion simultaneously, which compelled the Bank to default in servicing of SBP's debt. Due to resource constraints, the Bank could not extend credit facilities up to the required level.
The official documents claim that the Bank's profitability on account of lending rate is affecting the balance sheet portfolio. However, the Bank has neither mentioned the recruitments made in violation of criteria nor contracts given to blue eyed parties.
According to Bank sources, SBP was consulted in the matter. They maintain that ZTBL's subsidised lending is creating a major distortion, which is a major irritant in enhancement of agriculture credit by commercial banks at market terms. To provide level playing field to commercial banks the interest rate cap on ZTBL lending needs to be removed at the earliest.
Keeping in view the whole scenario, the Bank has proposed that cap on subsidised lending (mark-up rate of 8-9 percent) by ZTBL be removed and allow the Bank to effect gradual increase in the mark-up rate to current level in three years' time without any subsidy by the federal government.