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Advances against certain raw materials need no margins

KARACHI (October 30 2003): The new Prudential Regulations have put no margin requirement for advances against raw materials to manufacturing and processing units of capital goods, engineering goods, consumer durable, medicine, cotton yarn, cigarettes, fertilisers, pesticides, vegetable ghee and edible oil.

The SBP has put no margin requirements for advances against raw cotton (both phutti and lint cotton) to ginners. Banks have been kept free to determine the basis of valuation of stocks of cotton offered to them as security for credit facilities.

However, the stock of cotton may be valued by banks at cost or market value, whichever is lower, for advances to cotton ginners.

While banks are free to lay down their own lending policies, they have been advised to include, in their lending policies for financing against pledge of cotton, the aspect of contamination-free, as also different grades of cotton and their different prices, for determining the credit limits of their borrowers.

In case of 'Advances to Traders', a margin of 25 percent is required in cotton trading.

It further says that 25 percent margin is applicable to all forms of certificates including certificates issued under National Saving Scheme such as Special Saving Certificates, Khas Deposit Certificates, Defence Saving Certificates, NDFC Bearer Certificates, Foreign Exchange Bearer Certificates and any other Government backed securities. Prize Bonds will be given the same treatment.

No margin is required for advances against paddy and rice to modern rice mills ie, those rice mills which have fully automatic machinery and have husking capacity of not less than five tons of paddy per hour.

Advances against raw materials to iron and steel industry as well as ship-breaking industry do not require margin. Ship (unserviceable) for scrapping would constitute raw material for the ship-breaking industry.

SBP has no objection to banks accepting ships as collateral at their discretion.

No margin is required for advances against viscose fibre to manufacturing units.

However, 25 percent margin is required for advances against raw materials to manufacturing and processing units of goods other than those mentioned above.

Wheat to flour mills requires 10 percent margin, and for traders or growers of wheat the margin is 15 percent. Advances against finished goods also require 25 percent margin.

In case of advances to traders, 25 percent margin is required for sugar.

No margin is required for financing goods, including production machinery, commercial vehicles and consumer durable on hire-purchase or instalments plan.

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