Rice-import LCs on zero margin facility scrapped

Staff Correspondent | Published at 10:19pm on June 26, 2018

Bangladesh Bank on Tuesday asked all commercial banks not to open any letter of credit on zero margin for import of rice.
The margin will be decided based on banker-client relationship and risk of the loan for import of rice, the central bank said in a circular.
Banking regulation and policy department of the central bank issued the circular which also said that effectiveness of its previous two circulars issued on June 19 and June 21 in last year providing zero margin facility on import of rice expired on December 31.
The BB at that time had instructed the banks to open LCs without margin or taking any advance payment from the importers against the LCs to expedite rice import and contain the prices of the essential product on the local market following an abrupt rise in the rice prices.
The decision had been taken as the supply of rice faced a shortfall as flash floods in the haor areas caused a significant loss to rice production.
At that time, the BB had also restricted the tenure of payment or adjustment of current credit or overdraft facility (pledge and hypothecation) to 30 days from 45 days for the mill owners and rice traders.
In the latest circular to all managing directors and chief executive officers of banks, the BB said that rice production in the current year was satisfactory due to convenient weather.
The government has also taken various steps to ensure fair price of rice for local farmers and producers as well as to encourage them to cultivate rice.
The government is also working to ensure food security by raising the food-stock level to the expected level.
In this situation, banks are advised to determine the rate of margin in opening LCs for rice import considering the risk of loans for the purpose.
‘LCs should not be opened, at anyway, on zero margin,’ the circular said.
Rice millers and traders must have to adjust the current credit/ overdraft (pledge and hypothecation) with the banks within 45 days.
The mill owners and rice traders have to adjust or pay the current credit with the banks within 30 days, the circular added. Usually, banks open LCs for all imported items with keeping margin at various rates up to 100 per cent of credit based on bank-customer relationship.