Cotton pledged with banks: APTMA flags lack of interim benchmark rate

ISLAMABAD: The All Pakistan Textile Mills Association (APTMA) has raised concerns over the absence of an interim benchmark rate for cotton pledged with banks following the closure of the Karachi Cotton Association (KCA) office.

In a letter to the Governor of the State Bank of Pakistan (SBP), the association identified a discrepancy between the benchmark rate used by banks and the prevailing market price of cotton and the SBP’s intervention to ensure that textile mills can secure pledge fiancé based on realistic market rates.

As per prevailing banking practice, commercial banks use KCA rates as the benchmark for credit against pledged cotton. However, since the KCA office has not issued rate sheets after December 12, 2025, due to the closure of its operations, banks are using the last available KCA rate for valuation.

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The letter further states, “This created a serious discrepancy between the benchmark rate used by banks and the prevailing market price of cotton. The current market rate is around Rs 21,000 per maund, while banks are offering disbursement based on Rs 15,500 per maund, citing their obligation to follow the last available KCA rate. As a result, mills are being asked to arrange a much higher margin in addition to the mandatory margin requirement.”

The association asked the central bank to take up the matter with banks on a priority basis. In the absence of KCA rate sheets, it states that the Pakistan Cotton Ginners Association may be made the authorized body to issue spot rates for Pakistani Cotton for the entire country. These rates should be accepted by all banks as the benchmark for the valuation of cotton pledged against finance.

The letter states that the issue is creating cash flow pressure for spinning mills at the start of the new cotton season, when mills need to build raw material inventory, and discouraging the use of approved credit limits, which will affect cotton procurement from the market.

Copyright Business Recorder, 2026