Bank Wants Security For State Overdrafts

Northern Advocate, 27 July 1938, Page 2

Bank Wants Security For State Overdrafts

[Per Press Association. copyright.] j WELLINGTON, This Day. j In the annual report of the board of j directors of the Reserve Bank, comment is made on the extent to which finance has been provided for the marketing policy of the Government. The opinion is expressed that all advances should bo secured on the Consolidated Fund. The report states that advances are now being made to the Primary Products Marketing Department, so ns to j include any overdraft on the Internal j Marketing Account as well as the | overdraft on the Dairy Industry Ac- j count. At the close of the financial j year, 1936-37, the overdraft on the j Dairy Industry Account stood, at j £6,225.908, but by March 31, 1938, the total of the combined overdrafts was smaller, to the extent of £1,025,059. j I Monthly Advances Detailed figures are given showing monthly advances to the Dairy Industry Account and the Internal Marketing Account. The balance of advance outstanding in the former account at March 31 this year was £5,144,000. whereas the overdraft in the Internal Marketing Account was £56,038. The overdraft on the Dairy Industry Account represented the amount then outstanding on account of purchases of dairy produce in respect of the current year’s production, and [in addition the deficit of approximately £300,000 resulting from the first year’s operations. “In accordance with the provision of legislation,” the report adds, “all moneys derived from the sale of produce by the- department must be paid into one or other of these two accounts, and thus be applied inreduction of any overdraft which may be outstanding on the relative account at that time.. The measure of protection which is. thereby afforded to the bank does not constitute specific security for the overdrafts, Inasmuch as the produce is neither hypothecated to nor controlled by the bank. Moreover, the proceeds may fall short of the total cost, including administrative and other expenses. Regularisation Required "It is understood that the deficit in respect of the first year’s operations on the Dairy Industry Account is the responsibility' of the Government, and not of the dairy farmer, but as no provision has yet been made as to the source from which that portion of the overdraft is to be met, it is not secured, either directly or indirectly. “In view of the prohibition of unsecured loans or advances, the bank appears to be acting ultra vires in granting the overdraft on the two accounts of the Primary Products Marketing Department. but the statutory position in this matter has now boon regularised by an amendment which provides that advances in aid of the account shall not be deemed to be or to have been unsecured. “■Nevertheless, the board is of the opinion that all borrowings by the Stale, whether or not wholly or partly covered by other assets, should jbe secured on the Consolidated Fund j In accordaiice with the usual practice.”