KARACHI: The tenure of repayment on financing for development loans in crop and non-crop sectors has been doubled to 10 years, the State Bank announced on Wednesday.

In a circular to banks with amendments in Prudential Regulations for Agriculture Financing, the SBP said that the maximum repayment tenure of development loans has been increased from five years to 10 years in order to encourage banks and development finance institutions (DFIs) to enhance financing for development loans in crop and non-crop sectors.

The amendments are applicable to all banks and DFIs with immediate effect, the circular added.

The revised Prudential Regulations for Agricultural Financing covers General Regulations related to comprehensive agri-financing policy, exposure limits, secured or unsecured financing limits, guarantees, classification of loans, and other general requirements.

It also covers Specific Regulations for farm credit for input, farm development finance, loans for purchase of machinery and equipment, livestock financing, and corporate farming.

Since such loans are self-liquidating at the end of the growing cycle from the proceeds of the product sale, therefore, the maturities of these loans will coincide with the production cycle for the product being financed. The tenure of this sort of financing will generally be less than one year.

However, for certain crops requiring longer periods (from sowing to sale of the produce), banks and DFIs at their own discretion may extend financing for periods longer than one year. Further, banks and DFIs, at their own discretion, may sanction running finance limits to the borrowers, automatically renewable on annual basis.

The Farm Development Finance is a medium- to long-term loan extended by the banks and DFIs for making different types of improvements and developmental work at the farm including construction of godown, and development of orchards, nurseries, etc.

The Machinery and Equipment loan is the financing by the banks and DFIs for purchase of machinery and equipment to be used for agricultural purposes; like tractors, threshers, reapers or harvesters, tube wells, etc.

“All above loans ie for farm development and mechanisation tools are of medium- to long-term in nature ie 1 to 10 years,” said the SBP note.

Loans for farm development can be extended for one to 10 years, the State Bank said, adding the tenure of financing for machinery and equipment should not be allowed for more than the useful life of machinery or tool. “However, all such loans should be allowed for a maximum period of 10 years.”

The loans extended for goat and sheep farming, breeding of animals, dairy farming, fishing farms, poultry farms, etc. by banks and DFIs would fall under the category of financing for livestock. Livestock financing can be made for working capital as well as for development purposes.

“The maximum tenure for livestock financing would be ten years (including grace period),” the SBP added.

The SBP said the banks and DFIs are allowed to grant relaxation up to one year in repayment schedule, to their borrowers who have been adversely affected due to certain unforeseen and unexpected factors like weather, availability of water, etc. which are not under the control of the farmers.

“Banks are encouraged to immediately stop recovery, suspend or defer mark-up accruals, and may issue instructions for waiving off outstanding markup or principal where the chances of recovery are not possible due to heavy natural calamities like earthquake, floods, heavy rains, epidemic diseases, etc., said the SBP.

Banks may also formulate internal policies for creation of general reserves to cover any losses in the calamity hit areas, the SBP added.

Published in Dawn, July 25th, 2019