The State Bank of Pakistan (SBP) has enhanced the limit of agriculture financing from Rs. 1 million to Rs. 5 million through amendments in ‘Prudential Regulations’ (PRs) aimed at enabling banks and development financial institutions (DFIs) to streamline the flow of credit to farm and non-farm sectors.
According to the official statement, the maximum limit of unsecured/clean financing for agriculture has been enhanced from Rs 1.0 million to Rs 5.0 million.
Furthermore, the exposure limit for the requirement of financial statements duly audited by a practicing chartered accountant has been enhanced from Rs. 10 million to Rs. 15 million. Banks/DFIs are advised to ensure the dissemination of these regulations among their branches/field offices.
SBP revised the regulation in 2014 in consultation with stakeholders for the first time. The revised PRs provide instructions for banks to develop robust market-oriented policies and adopt practices for the facilitation of agriculture finance in Pakistan. These regulations are aimed at facilitating banks to enhance the flow of credit to the agriculture sector without compromising financial stability and banks’ risk management.
The statement highlighted that the banks/DFIs should put in place an appropriate management information system to monitor the quality of the agricultural portfolio continuously and take appropriate decisions at the right time. They are encouraged to diversify their agricultural portfolio in terms of geographical areas, types of financing, etc. to avoid the risks of concentration of credit, it added.
It also encouraged these financial institutions to extend agricultural financing based on future cash flows instead of relying solely on collateral. Standard cash flows can be estimated for different crops and these cash flows can then be adjusted for specific borrowers keeping in view the quality of land and efficiency of the individual farmers, etc., the statement added.