Revamping ZTBL Operations Part-I

Zarai Taraqiate Bank Limited (Former Agricultural Development Bank) was at times the leading source of institutional agricultural credit in the country and it helped well boosting agricultural production in the country for decades. Technological innovations and commercialization of agriculture have not only increased capital requirements of farmers but they are also seen as responsible for necessitating and increasing the demand for superior inputs requiring money. Today, due to wrong policies of the Government and mismanagement the Bank is in misery and continued shortage of institutional credit has led to increased farmer reliance on the highly expensive informal credit market charging 10 to 15% interest rate per month.



Revamping ZTBL Operations Part-I

By:      Shaukat Masood Zafar

Zarai Taraqiate Bank Limited (Former Agricultural Development Bank) was at times the leading source of institutional agricultural credit in the country and it helped well boosting agricultural production in the country for decades. Technological innovations and commercialization of agriculture have not only increased capital requirements of farmers but they are also seen as responsible for necessitating and increasing the demand for superior inputs requiring money. Today, due to wrong policies of the Government and mismanagement the Bank is in misery and continued shortage of institutional credit has led to increased farmer reliance on the highly expensive informal credit market charging 10 to 15% interest rate per month. Small Farms have always been the most efficient for sustainable way of agriculture having tremendous scope for increasing productivity have been altogether ignored by the Bank and small farmers have been put at the mercy of private moneylenders. The lack of viability of ZTBL has been reflected in a steady reduction of its relative importance within the financial sector of Pakistan. This decline in importance has occurred because the bank has not been able to increase and, even to sustain the flow of its loan-able funds, in real terms. The lending capacity of the bank has declined, in turn; because it has not been able to protect its portfolios from inflation nor have it vigorously collected its loans, in order to be able to grant new credit. Furthermore, it has not aggressively mobilized local resources, in order to be able to widen the range of its services and, in view of the poor quality of its services and the high transaction cost that it impose, it has lost the support of its clientele.

The rural credit market is confronted with a paradox, and small farmers are now in severe debt trap which has squeezed their efficiency and capacity. Farmers are dragged in to such kind of plights due to various reasons like spurious seeds, poor quality pesticides, non availability of fertilizers, delayed monsoons, ineffective irrigation system, mounting debts, exploitation by private money-lenders, lack of insurance, Government polices and so on. The main problems for the ill-fated farmers are now their indebtedness and credit crisis, because the income from their farms is not sufficient to their farm investment and their generic living expenditure. Desperate for income, the small farmers generally put all their land into a cash crop, borrowing money to purchase the inputs they need and neglecting to set aside a portion of land to grow their own food. They have no way to repay the local moneylender from whom they borrowed at usurious rates of interest.

Farmers, in Pakistan, often lack capital for investment in agriculture that is so very vital for improving their agricultural production. In conjunction with structural adjustment programs de-linking and privatizing the supply of agricultural inputs, marketing of agricultural produce, and provision of credit previously given by ZTBL, the supply of formal rural and agricultural credit appears to have considerably declined. Commercial banks have not entered the rural and agricultural credit market on a substantial scale.  This paucity of capital flow perforce makes them seek loans from money lending sharks at exorbitant rates of interest and often this debt-trap reduces them to penury. While other countries experienced success because they transformed their agricultural development banks with a focus on designing demand-oriented services and recovering costs, as is the case with the Bank for Agriculture and Agricultural Cooperatives in Thailand and the micro-banking system of the BRI in Indonesia, Pakistan continued subsidized rural banking through ZTBL coupled with extreme level political interference. Today, it is still important to recall why ZTBL need to be either dismantled or transformed. Indeed, repeating the same mistakes would be a waste.

ZTBL has no funds of its own; it mainly borrows from the State Bank of Pakistan. However, some special funding programs of the bank are funded by multilateral agencies like the World Bank, the Asian Development Bank, and the International Fund for Agricultural Development. Long-term  viability is achieved when a bank is able to cover all its costs including depreciation and financial charges and provide an appropriate return on equity, taking account of the risk profile of the bank. The bank should have been able to compete in the marketplace for capital on its own merits in compliance with relevant regulatory requirements. It should have mobilized its own resources; poor and low-income households have a large demand for safe and convenient deposit services.  The poor households have the capacity and willingness to have small savings for emergencies, investment, consumption, social obligations, education of their children and other purposes Savings are important for rural financing and provide a major source of investment funds. The bank has been pessimistic about opportunities for successful mobilization of local deposits. It has assumed, instead, that rural households do not save, do not want to transform some of their assets into bank deposits, and do not react to interest rates and other economic incentives.   Extensive use of informal savings arrangements by poor households is another indicator of their demand for savings facilities. Small rural savers have found no safe and convenient facilities to deposit.  By ignoring deposit mobilization, the Bank has been truncated, incomplete, and vulnerable intermediary It must become full intermediary, by adding deposit facilities as a preferred service to its clientele

Given lack of concern for viability, its own policies and procedures and political interference has eventually destroyed ZTBL. High NPLs of ZTBL with low recovery rate, its cumbersome and lengthy lending procedures, its lack of brilliant and well trained Credit Officers, its lack of innovative agriculture finance products, its’ management interest, and corruption are the major bottlenecks in agricultural financing. People who work on right principles are unrecognized and considered to be foolish in the bank. Corruption in the Bank is at its new heights. Earlier, bribes were paid for getting wrong things done, but now bribe is paid for getting right things done at right time. Further, corruption has become something respectable in the bank, because respectable people are involved in it. ZTBL should revamp and re-structure its agricultural lending mechanism by adopting modern and innovative techniques to boost agricultural financing.

The ability of the ZTBL to attract, retain, adequately motivate its personnel and build the requisite human resource capabilities is one of the prerequisites to improved service delivery. Many of the problems associated with the poor performance, lack of professionalism and corruption in the bank are related mismanagement and inefficiency.   A comprehensive approach to pay reform is crucial in the achievement of overall reform. Improving and developing the quality of manpower in the bank is a must so as to acquire competitive edge over others, face the challenges in a robust manner, develop business in diversified areas, adopt innovative avenues to raise resources, improve the quality of appraisal and bring transparency and fairness in day to day operations and to enjoy better credibility in the market. Following steps would help the bank smoothly carrying out the operations: 

1.         Competence is as big or bigger virtue than honesty. Unfortunately, there is a troubling history of the PPP regimes that the people appointed by it to head the institutions have been demonstrably neither honest nor competent ever. It has never brought in technocrats and professionals in the public departments to help develop and execute good policies for rapid growth. It has always promoted corrupt people, who have brought bad name to the party, but at least they must be capable enough to run the organization but it has not been the case. The Bank is a prime example of influence peddling by politically-linked people in getting posted to lucrative positions who have been taking decisions at their free-will for personal gains due to which this national institution is seen at the verge of collapse. It is first time in the history of Bank that highest management positions have been filled on political considerations. This so called “Management” is plundering hundreds of millions rupees in the name of high salary packages, perks, and facilities. It is a worst example of misuse of powers by the President of the Bank. Some of these appointees have no qualifications or experiences as compared to the officials already working in the bank, and bank is not fully utilizing these dear “brains” to their full potential. Most of the political appointees are very unproductive, unqualified, inexperienced, and very corrupt. When corruption and deploying inefficient and unskilled executives would not be stopped; it is very difficult to bring any betterment and change in the Bank. In spite of their proven inefficiency and lack of skills and experience of the political appointees, the Bank regular officials are receiving less pay as compared to the political appointees who are working with them in the same institution. Litigation in the Bank is all time high and millions and millions Rupees are showered on the counsels nears and dears to the management even in very ordinary cases. Millions and millions Rupees are being plundered in the guise of so called medical bills. Kickbacks are also reportedly received on procurement of equipments, computers, and others. The story of the imaginary profit of billions narrated by the management is also one which will keep Banking industry mystified for years.

2.         A cost reduction effort is as successful as the actual measured results – anything else is wishful thinking. The bank`s upper level staff receive almost more than 50 per cent extra in pay than their counterparts in private banks as state wages spiral. Employees of the bank should get incentives like their private sector counterparts to sustain the bank.

3.        Most of the recruitments are done at will instead of on any objective and systematic manpower assessment. There is no evidence of an objective system involving professional guidance for recruitment in ZTBL. The absence of proper manpower  planning and assessment and above board selection methodology, more often than not, has resulted in inappropriate staff profile and strength.  While managerial positions remains neglected, overstaffing is a prominent phenomenon in the lower  grades of staff. This is often the result of the management succumbing to external interference and pressures. All these inevitably contribute to inefficiency and low productivity. The bank should have an objective and transparent policy for recruitment of staff. Since staff cost accounted for substantial portion of administrative expenditure, norms in this regard can be developed only after an assessment  of the staff requirement and staffing pattern. An indicative method  of manpowe assessment  and planning  is require to be suggested keeping in view the objectives, growth potential, changes that have been effected already and likely changes in future, such as the need for financial inclusion, use of information technology, etc. As far as workload in a branch is concerned, number of accounts handled in a branch is far more important than the volume of  business in  terms of amount, and it would be appropriate to categorize branches on the basis of number of accounts while carrying out study for staff requirement. The cost of management should not exceed 2% of the working fund and 30-40% of total income. Following could be suggested for appropriation of staff strength.

i.     For every 1000 accounts one clerk may be posted.

ii.    One MCO for each active 1000 loan accounts.

iii. One Accounts Manager for 2000 active accounts (deposits + loans)

4.         The Board of Directors of the bank may create such number of posts keeping in view the actual requirement worked out based on business parameters especially the profitability, categorization of bank and branches, nature of activities, etc. Vacancies should be assessed every year and should cover both existing and those falling vacant during the ensuing year on account of superannuation, resignation etc. Profitability and capacity to pay should be important criteria while working out staff requirements. Additional financial liability for payment of compensation to staff should be within the net profit earned by the bank during the corresponding year or period so as not to have any adverse effect on the profitability of the bank.

5.         The Bank suffers from poorly motivated and inadequately trained staff. Staff strength is sometimes too high and sometimes too small, and seldom matches the expected workload. Staffin in the Bank should be based on actual human resources requirement study to be conducted and excess staff may be considered for training and redeployment in other functions with shortages, failing which, they should be offered voluntary retirement and/or retrenchment. CEO / President  should  be professional. Board and chairmen of the bank should divest themselves of day-to-day management tasks which should be handled by President. This President should have the skills of a tough enforcer, i.e. someone who wants to be respected for carrying out a difficult task, not someone who wants to be popular.

6.         The appointment of President of the bank is required to be made strictly on the basis ofFit and Proper criteria prescribed by the State Bank of Pakistan. The President should be assisted by the Executive Directors and other officers already available in the Bank having vast experience of developmental banking. Direct recruitment should be restricted to officers in Junior and Middle Management in different proportions prescribed. No direct appointment should be made beyond the level of OG-I. The bank may have to take a considered view in this regard with the approval of Boards of Directors. The recruitment and promotion of staff of all categories, their pay structure, qualifications for appointment, promotion, transfer, etc., should be strictly governed by the respective Staff / Service Rules.

7.         The ZTBL management has sidelined the senior employees of the bank, either by placing them in secondary departments not related with operations or they have been posted outstation. Most of the contractual appointments having no practical experience of developmental banking have been deputed on key positions. The bank should frame a transparent Transfer Policy, with the approval of the Board. Transfers should be part of essential service conditions and Management would decide on  transfer, based on administrative exigencies. Technical and Specialist officers may not be covered by general transfer norms. Transfers should be need based, so as to improve the performance and efficiency of the staff. Transfers should also be used as instruments for ensuring smooth career progression and for providing exposure to various areas of operations of the bank at different tiers. Norms for transfer of staff, including the normal tenure in different categories, ranging from 3 to 5 years are reasonable.

8.         To provide transparency, authenticity and accountability of the management, timely statutory audit is a must, a more conducive climate for recovery has to be built, innovative schemes must be drawn up including giving due weight to recovery performances in staff appraisal, and Government must assist the bank by instituting mechanisms for expeditious disposal of the cases filed in banking and other courts, the bank should establish a system of credit distribution and supervision whose costs are consistent with sustainable operations. To further improve recovery of bank’s dues contract farming is the best possible option for the Bank that can be easily implemented through KSSL, the bank’s subsidiary company.

9.         There is little doubt that credit channeled in the right direction can have significant antipoverty effects, and that broadening the outreach of formal lending institutions can be a step forward in the right direction. The bank must mobilize savings to support its lending. This savingsbased lending practice would make it more accountable for its loan disbursement, repayment and the cost of operation. Most interestingly, the bulk of the ZTBL loans are received by large landowners, who do not need subsidized loans and are able to repay the loan. Credit is already scarce and is grabbed by a small number of bigger farmers; outreach to the poor remains far behind expectations. Frequently, credit is being provided mostly to the wrong people (e.g., with political connections) at the wrong time (e.g., after the planting season) for the wrong purposes (e.g., administratively defined uses). Neither bank staff nor the farmers take the agricultural credit seriously, which has evolved into a political affair. Repayment rates have turned out to be abysmally low. In the process, bank, farmers and agricultural credit have been discredited. Yet political factors have played a heavy hand in the loan recovery position of the bank. With the dismal picture of this unlucky bank, there is no likelihood of any significant improvement in agricultural production sector. If agricultural credit schemes are to be supported, policymakers must know how much they are subsidized, who receives this subsidy, and whether it helps the small farmers/borrowers. It is however good decision on the part of the Bank that it has now reportedly decided to increase mark-up rates on loans being given to farmers across the country. The low mark-up rate did not help the Bank generate sufficient resources to meet the ever-increasing demand of agriculture sector and servicing of SBP’s debt of Rs 77.271 billion simultaneously, which compelled the Bank to default in servicing of SBP’s debt. Due to resource constraints, the Bank could not extend credit facilities up to the required level.

10.       Rural financial architecture should be completely revitalized.  It is reckoned that the planning process of our country is primarily aimed at ensuring access to credit in rural areas. Besides, it also stands at augmenting agricultural production and alleviating rural poverty, in addition to improving the efficiency of the rural credit delivery system. Further spread of rural branch networks manned by qualified personnel combined with the involvement of agency banking, credit counselling, and integration of non formal institutions with mainstream banking and reforming the lead bank scheme are the institutional component of the proposed financial architecture. As for the credit delivery, the entire rural finance not only encompasses credit to farming community but also the development of various farming and non-farming sectors of the economy.

11.       ZTBL while restructuring should ensure that its lending rates should compensate operating costs is sound financial advice, which, if followed earlier, would have prevented it from getting into the precarious state in which it is in at present. For too long, the emphasis in rural credit was on subsidies, as if cheap credit was all that was needed for the rural masses to prosper. The pittance provided to individual borrowers under these cheap loan schemes was not enough to make any impression on poverty. These schemes eroded instead the viability of the bank. The upshot has been completely misdirected lending, often because the policymakers in the bank do not even have a nodding acquaintance with agriculture and no roots in rural society. The existing large differentials between the confessional rates of interest charged by ZTBL and market rates is now responsible for rent seeking by the middlemen who re-lend credit, especially to the poor households at higher rates of interest. Large farmers have been the major beneficiaries of long-term loans at confessional rates at the expense of small and marginal farmers.


Muhammad Ramzan Rafique
Muhammad Ramzan Rafique

I am from a small town Chichawatni, Sahiwal, Punjab , Pakistan, studied from University of Agriculture Faisalabad, on my mission to explore world I am in Denmark these days..

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