SBP cuts mark-up on textile loans

KARACHI: The State Bank has decided to provide cheaper money to the textile sector as being extended to exporters under Export Finance Scheme (EFS).
The SBP on Monday announced a mechanism in consultation with the ministry of textile industry, under which the eligible borrowers of the textile sector will be provided mark-up rate facility under the SBP EFS and the mark-up rate support against long-term loans availed from banks and development financial institutions (DFIs).

According to two separate circulars issued on Monday the export finance mark-up rate facility will be admissible to the extent of 2.5 per cent per annum on the outstanding finance facility to textile industry under SBP’s EFS. Whereas, the maximum mark-up rate support will be admissible to the extent of 5 per cent p.a. or the difference in mark-up rate between floating rate loan and Long Term Financing Facility (LTFF) rate, whichever is lower.

It said the amount of support will be paid by the commercial banks or DFIs to the eligible borrowers at their respective branches, provided they have on-line registration certificate issued by ministry of textile industry.

The circulars said the EFS mark-up facility will be admissible only for the numbers of days the refinance facility remains outstanding under EFS, while mark-up rate support will be admissible on the principal amount of loans outstanding on reducing balance basis and the loans disbursed by the banks or DFIs up to August 31, 2009, will qualify for the support.

According to the circulars, the amount of facility or support will be paid by commercial banks or DFIs on six monthly basis in March and September each year subject to the release of necessary budgetary allocation by the federal government for relevant fiscal year.

Accordingly, support for six months ending on Feb 28, 2010 (from 1-9-2009 to 28-2-2010) will be paid from the date of issuance of these circulars up to April 23, 2010.

However, final dates for payment of support in the next period will be announced separately on receipt of budgetary allocations from the government for the respective periods.

According to the circulars, the banks and DFIs will pay to eligible borrowers to the extent of 60 per cent in case of EFS mark-up rate facility and 70 per cent in case of mark-up rate support of the total amount worked out for six months period from 1-9-2009 to 28-2-2010.

The remaining amount of subsidy will be provided upon receipt of funds from the ministry of finance as and when received, they added.

They said after making payments of support, the disbursing branch of banks and DFIs can seek its reimbursement from the concerned offices of the SBP-BSC as per the guidelines and that no service charges, fee of whatsoever nature, will be recovered by the bank or DFI from the borrowers for processing of these claims.

The circulars said no claim for six months ending on Feb 28, 2010 of mark up rate support will be entertained after April 23, 2010. Banks and DFIs were advised to ensure that all eligible cases were submitted by their concerned branches to the respective offices of SBP BSC (Bank) as per schedule.The federal government had announced export finance mark-up rate facility and mark-up rate support for textile sector effective Sept 1, 2009 and pursuant to the release of budgetary allocation by the ministry of finance for payment of this support for six months ending on Feb 28, 2010, the State Bank has devised the procedure so that borrowers of the textile sector can avail the facility and support.