The Agriculture Development Bank of Pakistan (ADBP) is being converted into a public limited company in persuance of its restructuring plan approved by the Federal government. The legal charter of the bank has already been changed to facilitate this conversion and the Securities and Exchange Commission of Pakistan is being moved for its registration as a public limited company under the companies ordinance.

The federal cabinet in its meeting presided by President Gen. Musharraf, in early August, approved a plan to restructure the administrative set up of the ADBP by converting it into a public limited company with, Rs.10 billion equity. The Finance Ministry drafted the restructuring Plan with the full backing of the State Bank of Pakistan (SBP) and convinced the federal cabinet for the bank's conversion into a limited company. The steps proposed by the Ministry of Finance and approved by the cabinet for the conversion of ADBP into a limited company are as follows:

An ordinance for the repeal of Agriculture Development Bank Ordinance 1961 may be issued for which a draft of Agriculture Development Bank of Pakistan (Reorganisation and conversion) Ordinance 2002 vetted by the Ministry of Law and Justice which would be promulgated.

After promulgation of the approved ordinance, the Ministry of Finance would issue vesting order, specifying the effective date and other relevant details for transfer for all assets, liabilities, business and staff from lDBP to the new company.

The new company will have an equity of 10 billion based on the following proposed financial arrangements.

The entire outstanding amount of the current government loans to ADBP, about Rs.15.5 billion, will be transferred to the equity of the new company.

The amount of about Rs.5.5 billion representing claims of ADBP against the government for past remissions will be fully provided for by the ADBP.

SBP's current equity holding of Rs. 3.204 billion in ADBP will be converted into a "Subordinated Loan" to be repaid by the new company on terms to be agreed with the SBP.

The existing negligible shareholding of the provincial governments in ADBP will be transferred to the new company.

The decision aims at injecting necessary improvements in the overall operations of the organization, thereby making it more efficient in extending financial assistance to the farmers. The Cabinet took a serious view of the huge defaults to the extent of 45 per cent of the total loan portfolio of the bank in the agriculture sector. It is true that the ADBP quite frequently came under criticism from its borrowers or the farming class. The charges of corruption against its officials in deciding on loan applications in addition to long delays in the distribution of credit have been found to the quite common. However, lately improvements have been reported to a large extent in the performance of the bank officials due to introduction of one window facilities offered to borrowers for different types of loan requirements.

All said and done, the bank's contribution in meeting the financing requirements of the agricultural community, especially the smaller farmers has been a major source of strength for the agriculture sector over since the inception of the bank in the early 1950s. lt. may be pointed out here that commercial banks in the country, operating as they do on the basis of commercial considerations, understandably did not like to deeply involved themselves in loan financing in agriculture due to the low credibility of borrowers in this sector. As such, the ADBP was the only source of loan financing for agriculture.

The conversion of the ADBP from a sub-ordinate organisation of the governrment to a public sector corporation, it may be pointed out, would not alter its basic status, and therefore, the likelihood of any significant change for the better in its operational efficiency can hardly be expected. The suggestion that the bank would be made to operate within the parameters of commercial banking to lend money on the basis of merits and demerits of borrowers in the agriculture sector, means no radical change in practical terms. The over-riding objective in the financing of agriculture sector should be that all farmers without any exception, especially the smaller ones, have an uninterrupted access to credit. Then alone the desired pace of growth along with modernization in operations may be assured.

The management of the bank is however very optimistic about its improved performance in future. According to them, the bank is following a multi-pronged strategy to improve its working and financial health. The recent announcement of a golden handshake scheme was one of them.

The chairman of ADBP is fully convinced that the scheme has worked to the expectations and would help offload surplus staff. Overstaffing in the bank had been a key issue and the management thought that it was adversely affecting the banks performance. According to the chairman, over 2000 employees have opted for retirement through golden handshake scheme and a committee was reviewing all these cases. The committee would submit recommendations to the chairman as soon as it completes its job.

Chairman of the bank is confident that bank would serve the purpose in a more effective manner once it gets the status of a public limited company. The sole objective of revamping is to increase its efficiency and pass on benefits to the farmers, he said. Responding to another question at a press briefing he said the bank would approach the State Dank for funds for payment to the beneficiaries of the scheme. The Asian Development Bank (ADB) has offered the government financial assistance for restructuring of the ADBP. It wanted an efficient bank to cater financial needs of agriculture sector and enhance farm production.