LAHORE-The State Bank of Pakistan (SBP) has stepped in to curb the sugar mills monopoly by restricting financing against the security of sugar stock, it was reliably learnt here on Monday. The SBP has directed all the banks to disallow fresh financing or renewal against hypothecation of sugar stocks. The SBP also instructed all banks and DFIs to enforce 50 per cent cash margin against the pledge of sugar in order to restrict and discourage hoarding of sugar. The SBP instructions stress that all existing loans/advances against the security of sugar stock (disbursed before the crushing period of 2008) shall be fully adjusted latest by March 31st, 2009. The SBP circular issued on Monday relates to 'margin restrictions for financing against the security of sugar stock' which aim at discouraging hoarding of sugar and bringing down the sugar prices in the open market. The sources concerned said the initiative would help bring down the sugar prices in the local market during the next couple of months. They further revealed that panic selling could happen on part of sugar mills, as they are obliged to clear their advances. 'This panic selling would definitely result in bringing down the prices of sugar in the open market', they maintained. Asghar Butt, President Lahore Sugar Dealers Association lauded the initiative, saying it would help eliminate the monopoly of sugar mills. 'It is a very good initiative. It would ensure maximum benefit to the general public', Asghar commented, when contacted. He said the sugar mills owners would be left with no other option but to sell sugar stocks to repay their loans, which would help reduce the sugar prices. The market sources revealed that a sugar mafia in connivance with the sugar mills owners is actively involved in hoarding of sugar and creating artificial shortage in a bid to increase the sugar prices. This initiative will discourage the mafia besides ensuring proper supply of sugar, they added. The SBP circular, available with The Nation,said: 'In order to discourage hoarding of sugar, banks/DFIs are advised to ensure meticulous compliance of the following instructions with immediate effect: 'All existing loans / advances against the security of sugar stock (disbursed before the crushing period of 2008) shall be fully adjusted latest by March 31st, 2009. Furthermore, loans / advances against fresh stock (disbursed after start of crushing period 2008) shall also be fully adjusted latest by July 31st, 2009. Any renewal / fresh disbursement of such loans / advances shall be made only after a clean up period of at least one month after the adjustment of loan'. 'All renewals/fresh disbursements of financing facilities against sugar stock shall henceforth be subject to a minimum cash margin of 50 pc. The banks/DFIs shall not finance the cash margin themselves'. The circular further said:'No fresh financing / renewal will be allowed against hypothecation of sugar stocks'. 'Banks / DFIs will monitor the position of pledged sugar stocks and ensure that the release of pledged stock should result in corresponding reduction in outstanding loans / advances'. The circular points out that the above instructions shall not be applicable to financing facilities provided to Trading Corporation of Pakistan. 'In order to enable State Bank to monitor the situation, all banks/DFIs shall submit the position of their outstanding loans / advances against sugar stock on fortnightly basis to this Department on the enclosed format within three days of the end of each fortnight'. The SBP has warned that any violation of the above instructions shall attract punitive action under the relevant provisions of the Banking Companies Ordinance, 1962.