A signing ceremony between NBP and Waves was held in Lahore. With a commitment of Rs1.5 billion, NBP will be one of the largest financiers of the project.
NBP is also the mandated lead advisor and arranger for the upcoming syndicated finance facility to further develop the project.
This financing represents the active role NBP is playing to support the development of real estate sector in Pakistan.
Waves has been prominent player in the home appliance market of Pakistan for almost five decades and is now venturing into real estate sector. This financing will kick start the development of housing project.
The state of the art project is being launched under brand name “Waves Enclave” and will target affordable housing segment of the market with an inventory of more than 1,000 apartments.
This will be located at the entrance of Lahore between Thokar Niaz Baig and Allama Iqbal Town on the main Orange Metro Line.
Top of the line architects and consultants have been hired for the project and it is in the process of required approvals.
Its formal launch is expected in later half this year.
ISLAMABAD: The Finance Division has issued a notification to implement the decision of the government to raise 10 per cent increase in pension to pensioners of the federal government.
Prime Minister Shahbaz Sharif has sanctioned an increase of 10 per cent of net pension with effect from April 01, 2022 until further orders to all civil pensioners of the federal government including civilians paid from defence estimates as well as retired armed forces personnel and civil armed forces personnel.
The finance division explained that for the purpose of admissibility of increase in pension sanctioned the term ‘Net Pension’ as pension being drawn minus medical allowance.
The increase will also be admissible on family pension granted under the pension-cum-gratuity scheme, 1954, Liberalized Pension Rules, 1977, on pension sanctioned under the Central Civil Services (Extraordinary Pension) Rules as well as on the Compassionate Allowance under CSR-353.
The finance division said that if the gross pension sanctioned by the federal government is shared with any government in accordance with the rules laid down in Part-IV of Appendix-III to the Accounts Code, Volume-I, the amount of the increase in pension will be apportioned between the federal government and the other government concerned on proportionate basis.
“The increase in pension sanctioned will not be admissible on special additional pension allowed in lieu of pre-retirement orderly allowance and monetized value of a driver or an orderly,” it said.
The benefit of increase in pension sanctioned will also be admissible to those civil pensioners of the federal government who are residing abroad (other than those residing in India and Bangladesh) who retired on or after August 15, 1947 and are not entitled to, or are not in receipt of pension increase under the British Government’s Pension (increase) Acts.
The payment will be made at the applicable rate of exchange, it said.
ISLAMABAD: The new government – formed by leading political parties – on Friday decided to keep the prices of petroleum products unchanged for next fortnight.
The previous PTI government had decided to freeze the price of petrol at Rs150 per liter till June 30, 2022.
Prime Minister Muhammad Shehbaz Sharif has rejected the Oil and Gas Regulatory Authority’s (OGRA) proposal to hike prices of petroleum products in the country.
It was announced by the Prime Minister while addressing an Iftar Dinner at Prime Minister House in Islamabad on Friday tonight.
The previous government on February 28, 2022 decided to reduce the prices of petroleum products despite the high international oil prices in the wake of Russia-Ukraine war.
The finance division had issued the notification to cut the prices of petrol and diesel by Rs10 per liter each from March 01, 2022.
According to a statement issued by the finance division, the global prices of petroleum products are tracking the Ukraine-Russia war and resultantly surged to $100 per barrel. “The unprecedented increase is very risky for the domestic fuel prices and inflation,” it added.
The situation leaves very few options for the government, it said, adding that prior to review on February 28, 2022, the government had left more than Rs70 billion per month to keep the prices lower and providing relief to the masses.
In the fortnightly review on February 28, 2022, the Oil and Gas Regulatory Authority (OGRA) recommended Rs10 per liter increase in the prices of petroleum products.
According to the statement the new prices of the petroleum products effective from March 01, 2022 are:
The price of petrol slashed by Rs10 to Rs149.86 per liter from Rs159.86.
The rate of high speed diesel has been reduced by Rs10 to Rs144.15 per liter from Rs154.15.
The price of kerosene oil has been brought down by Re1 to Rs125.56 per liter from Rs126.56.
Similarly, the rate of light diesel oil has been slashed by Rs5.66 to Rs118.31 per liter from Rs123.97.
While retaining the prices at current level, Shahbaz Sharif said the government will bear burden of increase in prices of petroleum products itself instead of shifting it to the masses.
He said that the Prime Minister Office will now be working as Pakistan House where officers from across the country will serve.
The prime minister said consultation is underway over formation of federal cabinet and it will soon be fianlized.
KARACHI: Banks have approved Rs180 billion as loan for low cost housing, the State Bank of Pakistan (SBP) said on Thursday.
The SBP said building upon current momentum, banks have shown strong progress in approving and disbursing the financing under Mera Pakistan Mera Ghar Scheme against the manifold increase in applications by borrowers to avail housing finance.
Up to April 11, 2022, banks received applications for housing finance amounting to Rs409 billion, which was merely Rs57 billion a year ago, reflecting an increase of more than 7 times. Out of these, banks have approved applications amounting to Rs180 billion and disbursed Rs66 billion against the approved applications.
This shows an increase in approvals of applications of more than 11 times as, a year ago, in April 2021, the banks had approved only Rs16 billion.
Similar trends can also be observed in the overall financing to the housing and construction sector by banks. Banks almost doubled their housing and construction finance portfolio to Rs404 billion as of March 31, 2022 from Rs204 billion a year earlier. In increasing their housing and construction finance, banks have also achieved, almost 100 per cent, the first quarter target of Rs405 billion for 2022.
To improve provision of financing for the housing and construction sector to increase adequate housing in the country and boost construction sector activities, State Bank of Pakistan (SBP) with the support of Government of Pakistan has taken several measures since July 2020. In October 2020, the Government of Pakistan augmented these efforts by introducing the Government Markup Subsidy Scheme, now commonly known as Mera Pakistan Mera Ghar (MPMG) Scheme. Available in both conventional and Islamic mode, this scheme enables banks to provide financing for the construction and purchase of houses at very low financing rates for low to middle income segments of the population.
Key initiatives taken under MPMG scheme included allowing acceptance of third party guarantee during the construction period, waiver of Debt Burden Ratio (DBR) in case of informal income and the introduction of standard facility offer letter by the banks. SBP also advised banks to develop and deploy income estimation models for borrowers with informal sources of income. In addition to gauge readiness, knowledge and appropriateness of behavior of banking staff towards customers, regular mystery shopping of banking branches were also conducted by State Bank all over the country.
The current progress under MPMG is also attributed to banks’ improved preparedness for handling housing finance that includes alignment of banks’ strategic focus, continued improvements in their systems and procedures, training and capacity building of staff, extensive marketing and leverage of technology to reach out to customers. These improvements have helped banks in better handling of financing requests of potential customers. The huge influx of applications and subsequent approvals of financing by banks under the Scheme indicates that current momentum of disbursements under MPMG will continue in the coming months as well.
STATE BANK OF PAKISTAN
SBP also advised housing and construction finance targets to banks on July 15, 2020. Banks were required to increase their housing and construction finance portfolio to 5 percent of their domestic private sector advances by the end of 2021. As a result, banks’ financing to housing and construction sector increased to Rs367 billion as of December 31, 2021 from Rs148 billion as of June 30, 2020. For 2022, banks have been advised to increase their housing and construction portfolio to 7 percent of their domestic private sector advances i.e. up to Rs560 billion.
KARACHI: Shan Shares, the CSR identity of Shan Foods, in partnership with the Robin Hood Army, conducted a ration distribution drive for the month of Ramadan.
The Robin Hood Army is a volunteer-based, zero-funds organization that works to feed less fortunate people in its commitment to beat global hunger.
The organization is expanded across international borders, actively operating in 12 countries including Pakistan, India, Bahrain, Nigeria, and Uganda.
Channeling the spirit of sharing and kindness through this drive, Shan Shares, along with the Robin Hood Army, distributed ration packs among underprivileged people in Karachi’s Korangi area to help them meet their nutritional needs as they fast during the month of Ramadan.
Shan Foods employees also volunteered during the drive, displayirorporate Communications and PR at Shan Foods, while appreciating the employees and the success of the distribution drive, said, “Shan Shares is one family that is committed to creating a positive impact and making a difference in the society by uplifting and enabling the people in need. We believe this is our duty towards our fellow citizens to shape an equitable and prosperous society for everyone.”
Shan Shares has been diligently working for restoring a sustainable world for the welfare of the people and the society. The organization hopes to take forward Shan Foods’ mission of battling hunger among other goals and is taking impactful steps to achieve it.
Pakistan’s political saga took a surprising turn over the weekend as Pakistan’s President approved the dissolution of the National Assembly on the Prime Minister’s advice, analysts at KASB Research said.
Imran Khan then announced early elections, likely within the next 3 to 6 months. Most notably, the Supreme Court of Pakistan (SCP) has scheduled a hearing on the Suo Moto notice taken by the CJP over the incident. Any parliamentary actions thereafter will be subject to the court’s orders.
The decision to dissolve the national assembly is likely a credit-negative event for the economy. Considerable risks to announced reforms have arisen, including fiscal reforms and planned revitalization of the energy sector. Moreover, concerns of delays in the upcoming federal budget will drive sentiments of further delays in the IMF tranche’s approval. With SBP’s reserves falling to a 15 months low level of 12.1 billion (import cover: nine weeks), risks to Pakistan’s credit outlook have greatly heightened.
The scenario is evidenced by the rising international bond yields of Pakistan securities, whose yields have surged past 16 per cent compared to 5 per cent a few months prior. Moreover, Pakistan’s CDS spreads have also crossed the 10 per cent mark, a rise of 6pps from a month prior. Month to date, foreign investors have offloaded USD 28 million worth of equities, and we expect potential outflows to gain pace in the coming weeks as the political situation unfolds.
Secondary market yields and currency likely to rise further:
We expect secondary market yields of domestic securities to face additional upside pressure as macroeconomic risks heighten. Yields were already on a sharp upwards trajectory following the rise in global commodity prices, rising risks to external accounts, and falling foreign currency reserves. Rising domestic yields will likely translate to increased lending rates. Moreover, external account imbalances amidst the commodity upcycle, coupled with expected delays in the IMF tranche, will likely keep the Pak Rupee under pressure.
Sectors dependent on policy reforms will likely underperform:
We highlight risks to sectors whose performance outlook hinged on the planned policy reforms. These risks are particularly weighted towards Pakistan’s energy sector, which is presently plagued with considerable inefficiencies. We had earlier highlighted our preference for the sector on account of the planned reforms to uplift the industry, including significant actions to curb the circular debt growth.
Key risks to the energy sector emerging:
1) Oil and Gas Exploration: The WACOG bill was introduced to alleviate the cash flow crunch of the sector originating from the sale of gas. With expected delays in the implementation of the WACOG bill, which has faced harsh criticism from the opposition, we expect the cash flow woes of the sector to continue for a sustained period.
2) Oil and Gas Marketing: The WACOG bill was also expected to alleviate the cash flow issues of the OMC sector, particularly PSO. Moreover, planned reforms to ease the circular debt, including a distribution network uplift, may also face delays, further exacerbating the industry’s cash flows.
3) Independent Power Producers: The IPPs were also expected to benefit from actions to curb the circular debt. Most notably, the sector’s collections have considerably worsened after the recent surge in global energy prices. While the government had plans to set up a Revolving Account of PKR 50bn to ensure timely clearance of overdue bills, any delays on this front will continue to keep the sector’s cash flows under pressure.
4) Refineries: The improving outlook on refineries was largely dependent on the approval of a long-term refinery policy, which was expected to attract investments of up to USD 10.0bn. We project significant delays in the policy’s approval and expect the sector to continue underperforming over the medium term.
Macroeconomic hedged sectors to fare better:
As highlighted in one of our previous reports (Pakistan Strategy – USD hedged stocks a shield against macroeconomic heads), we prefer industries capable of weathering the macroeconomic headwinds including Textiles and Technology. These industries have a relative shield against rising interest rates and currency weakness.
KARACHI: The holders of bearer prize bonds can exchange or convert the securities with documented ways by March 31, 2022.
Through a circular issued by the State Bank of Pakistan (SBP) on December 21, 2021 the date for exchanging the bearer prize bonds with denominations of Rs40,000, Rs25,000, Rs15,000 and Rs7,500 was extended up to March 31, 2022.
Earlier, the last date for exchanging the bearer prize bonds was December 31, 2021.
The SBP instructed the banks to accept requests for encashment / conversion / redemption of cited denominations from general public till March 31, 2022.
“Further, the banks shall submit branch / region wise consolidated data of cited denomination national prize bonds held by them on last date i.e. March 31, 2022 latest by April 1, 2022, as per the instructions stipulated in aforementioned CMD Circulars.
The finance ministry launched the withdrawal of the unregistered prize bonds in a phased manner. The federal government on June 24, 2019, announced to discontinue the circulation of Rs40,000 denomination national prize bonds. Similarly, on December 10, 2020, the government announced to discontinue the circulation of Rs25,000 denomination prize bonds. In April 2021, the finance ministry announced that national prize bonds of denominations Rs7,500 and Rs15,000 shall not be sold.
Since June 2019 the government repeatedly extended the date for exchanging the bearer bonds. Previously, the last date for exchanging the unregistered bonds was December 31, 2021.
The government is aiming to document the bearer bonds so the exchanging the unregistered bond with cash has been prohibited. The ministry of finance issued various procedure to convert the bond without exchanging with the cash.
The bonds can be converted to premium prize bonds (registered) of denomination of Rs25,000 and Rs40,000 (subject to the adjustment of differential amount) through 16 field offices of State Bank of Pakistan (SBP) Banking Services Corporation (BSC), and branches of six commercial banks i.e. National Bank of Pakistan, Habib Bank Limited, United Bank Limited, MCB Bank Limited, Allied Bank Limited, and Bank Alfalah Limited.
The bonds can be replaced with Special Saving Certificates/Defence Saving Certificates through the 16 field offices of SBP Banking Services Corporation, authorized commercial banks, and the National Savings Center.
The bonds will only be encashed by transferring the proceeds to the bonds holder’s bank account through the 16 field offices of SBP BSC as well as the authorized commercial bank branches and to the Saving Accounts at National Savings Centers.
KARACHI: The State Bank of Pakistan (SBP), in collaboration with banks, is organizing a two-day exhibition in Faisalabad on March 19, 2022 to provide information on house financing.
The State Bank of Pakistan is organizing a two-day Mera Pakistan Mera Ghar (MPMG) Mela at Circle Club Faisalabad on March 19 and 20, 2022, a statement said on Thursday.
In the Mela banks will provide information on the MPMG financing facility whereas builders, developers and real estate agents will showcase the various projects in which the people could purchase housing units or apartments using the financing facility.
The residents of Faisalabad who want to purchase/construct their own house will have an opportunity to obtain information about their eligibility for availing the subsidized housing finance, their monthly installments based on amount of financing and monthly income.
They will also be able to apply for financing from the banks, which may give an in-principal approval then and there provided the required information is provided to them.
The Mela offers free entry and parking for the families besides other attractions including opportunities to win valuable prizes through open draw, daily live music concert by renowned singers, food stalls, and an activity packed fun-area for kids and young ones.
LAHORE: Pakistan International Airlines (PIA) – the national flag carrier – has commenced its flight operations to Baku, Azerbaijan from the country’s two major cities i.e. Lahore and Karachi, according to a statement issued on Wednesday.
The airline management under the guidance and leadership of CEO PIA, Air Marshal Arshad Malik is fulfilling the vision of Prime Minister of Pakistan to foster and promote brotherly ties with Central Asian Countries and also keeping in view the demand of passengers, to increase revenue and to facilitate passengers, has initiated flights to Baku, one of the emerging tourists destinations that offer ease of Visa facility, having friendly and welcoming people with same religion and lots of historic sites to visit both in Pakistan and Azerbaijan.
The inaugural flights departed from the two cities on Wednesday morning. PIA will operate one flight per week from Lahore and Karachi to Baku. Simple Cake cutting ceremonies were held at Karachi and Lahore Airports. Both flights operated with full loads. CEO PIA also traveled on the first flight to Baku.
CEO PIA Air Marshal Arshad Malik welcomed the passengers of the first flight from Lahore. He met with the passengers and exchanged views with them. The passengers thanked CEO PIA Air Marshal Arshad Malik and the airline’s management for initiating direct non-stop flights to Baku.
Sharing his views on the occasion, he said that the flights to Baku will not only facilitate in trade between the two countries but also promote tourism and further build upon brotherly relations between Pakistan and Azerbaijan.
CEO PIA thanked the passengers for making PIA their preferred choice for travel. He said that the airline’s network expansion is under way more flights will be added to the airline’s network including non- stop flights to Australia.
Ambassador for Azerbaijan Khazar Farhdove also traveled on the inaugural flight from Lahore to Baku, while at Baku airport officials of Civil Aviation authority and senior Government officials welcomed the passengers.
The passengers of PIA’s flight to Baku from Karachi were welcomed and seen off by PIA senior officials.
KARACHI: The State Bank of Pakistan (SBP) has revised regulations related to housing loans and general loans mainly related to eligibility of borrowers.
The central bank on Wednesday issued a circular to revise Prudential Regulations for Microfinance Banks.
The SBP said that in order to align classification and provisioning requirements with enhanced loan sizes, it has been decided to revise Prudential Regulations R-5, R-8 and R-10 for MFBs as under;
Regulation R-5: Maximum Loan Size and Eligibility of Borrowers
Maximum loan sizes and borrowers’ income eligibility criteria shall be as under;
General Loans (Other than housing loans): The maximum size for general loans shall be up to Rs. 350,000/- to a poor person with annual income (net of business expenses) up to Rs. 1,200,000/-.
Housing Loans: The maximum size for housing loans shall be up to Rs. 3,000,000/- to a single borrower with annual income (net of business expenses) up to Rs. 1,500,000/-. Further, MFBs shall ensure to implement the following requirements:
(a) General Instructions
i) MFBs shall not allow housing finance purely for the purchase of land/plots; rather, such financing would be extended for the purchase of land/plot and construction on it.
ii) The sanctioned financing limit, assessed on the basis of repayment capacity of the borrower, value of land/plot and cost of construction on it etc. shall be disbursed in tranches.
iii) The amount disbursed for purchase of plot must not exceed the 90 per cent of the market value/cost of land/plot and 50 per cent of the financing limit. The remaining amount shall be disbursed for construction there-upon.
iv) MFBs will take a realistic construction schedule from the borrowers before allowing initial disbursement. For construction-only cases, the sanctioned financing shall also be released in tranches commensurate with the stage of construction.
v) In case of cost overrun, MFBs may entertain the customer for additional finance for completion of house, keeping in view the Debt Burden Ratio (DBR) and cushion in overall Loan-to-Value (LTV) ratio.
(b) Permission from Relevant Authorities
The MFBs shall not disburse housing finance unless ensured that prior permissions/clearances for construction/purchase of property from relevant authorities are available.
(c) Creation of Mortgage
The plot/house/flat financed by the MFBs shall be mortgaged in MFBs’ favour by way of equitable or registered mortgage.
(d) Loan to Value (LTV) Ratio
Loan to Value Ratio should not exceed 90 per cent.
(e) Risk Management and Internal Control Systems
Risk management framework, duly approved by the Board of Directors of MFBs, should appropriately cover housing finance. MFBs shall ensure strict compliance with their internal policies and procedures and those prescribed by SBP from time to time.
(f) Information Disclosure
MFBs shall clearly disclose all the important terms & conditions, fees, charges and penalties etc., which should, inter-alia, include annualized percentage rate, pre-payment penalties and the conditions under which they apply.
For the purpose of this regulation, Annualized Percentage Rate means as follows:
Mark-up for the period
X
365
x
100
Average outstanding principal amount during the period
No. of days
(g) Development of Financing Documentation
The MFBs shall prepare standardized set of financing and recourse documents, duly cleared by their legal counsels, comprising of financing agreement, application form and the other requisite supplementary documents.
(h) Title Documents
MFBs shall obtain all title and ownership related property documents from customers which should be clear and free from all encumbrances/legal charges and get these documents vetted by their legal department/advisor(s). MFBs shall provide a signed copy of the list of all title and property documents to the borrowers.
(i) Verification of Property-related Documents
MFBs shall verify necessary information provided in the application form. Accordingly, all title and other legal documents provided with application form shall be verified directly from the relevant issuing authorities. All the documents shall be kept in safe custody meeting all procedures/requirements.
(j) Property Assessment
MFBs shall ensure that a proper property valuation is done by their internal resources. However, properties valuing above Rs. 3.0 million shall be subject to assessment by valuator on approved panel of Pakistan Banks’ Association.
(k) Insurance/Takaful
MFBs may obtain insurance/takaful coverage of the housing unit financed through a reputable insurance/takaful company to sufficiently cover their risk.
(l) Monitoring of Market Conditions
The management of MFBs shall put in place a mechanism to monitor conditions in housing finance market at least on half-yearly basis to ensure that their policies are aligned with the current market conditions.
Microenterprise Loans:
The maximum size for microenterprise loans shall be up to Rs. 3,000,000/- to a single project or business. The MFBs shall extend the microenterprise loans only in the name of micro entrepreneurs to ensure traceability and reduce the incidence of multiple borrowing. However, the aggregate exposure against the microenterprise loans in excess of ceiling prescribed for general loans shall not exceed 40 per cent of the MFB’s gross loan portfolio.
Pre-requisites for Undertaking Microenterprise Lending:
Only those MFBs that are fully compliant with Minimum Capital Requirement (MCR) and Capital Adequacy Ratio (CAR) shall be eligible to undertake microenterprise lending.
i) MFBs interested to extend microenterprise loans exceeding ceiling prescribed for general loans shall develop related institutional capacity (products, credit risk management and monitoring system, trainings etc.) and submit detailed business plan of microenterprise lending to SBP for seeking necessary approval for pilot program. The SBP shall inter-alia evaluate the plan along with operational/financial performance, funding plan, supervisory assessment, and credit rating of the MFB, and accordingly grant permission for launching pilot program to the applicant MFB.
ii) During the pilot phase MFBs will have to ensure that their aggregate exposure against the microenterprise loans in excess of ceiling prescribed for general loans shall not exceed 20 per cent of the gross loan portfolio. The final approval for undertaking microenterprise lending on full/commercial scale shall be granted subject to satisfactory evaluation of pilot program.
iii) The enhanced loan size (up to Rs. 1,000,000/- and Rs. 3,000,000/- respectively) will be allowed to those MFBs which have graduated from pilot microenterprise lending programs (up to Rs. 500,000/- and Rs. 1,000,000/- respectively) to commercial scale. However, prior to extending microenterprise loans exceeding Rs. 500,000/- and Rs. 1,000,000/-, MFBs shall apply to Agricultural Credit & Microfinance Department, SBP for approval. SBP shall grant approval for pilot/commercial launch based on satisfactory assessment of the capital position and readiness level of the applicant MFB.
Miscellaneous
(a) Income Eligibility Assessment for General & Housing Loans:
While assessing income eligibility on individual borrowers (including salaried persons) for housing & general loans, MFBs shall ensure that the total installment of the financing facilities extended by the financial institutions is commensurate with monthly income and repayment capacity of the borrowers, such that total monthly amortization payments of financing facilities should not exceed 50 per cent of the net disposable income of the prospective borrowers. These measures would be in addition to MFBs’ usual evaluations of each proposal concerning credit worthiness of the borrowers, to ensure that their portfolio fulfills the prudential norms, instructions issued by the State Bank of Pakistan and does not impair the soundness and safety of the MFB itself.
(b) Consumption Financing against the Security of Gold:
In line with SBP’s instructions issued vide AC&MFD Circular No. 02 of 2015 (Annexure I, Para-2), MFBs may also extend loans against gold collateral for consumption purposes categorized as domestic needs/emergency loans. However, MFB’s aggregate loan exposure against the security of gold shall not exceed 35 per cent of its gross loan portfolio.
(c) Asset Liability Mismatches
MFBs shall prudently manage the maturity mismatches arising out of their housing and other long term financing portfolios by raising long-term funds for on-lending and vice versa.
Regulation R-8: Classification of Assets and Provisioning Requirements
A. Specific Provisioning:
The outstanding principal and mark-up of the loans and advances, payments against which are overdue, shall be classified as Non- Performing Loans (NPLs) as prescribed below:
Loan Categories
Time based Criteria for Classification of Assets and Provisioning Requirements
MFBs shall maintain a General Provision equivalent to 1.0 per cent of the net outstanding loans/advances. However, where the loans/advance have been secured against gold and/or other liquid assets, the general provisioning against outstanding amount net of such security shall be required.
C. General Instructions for Classification / Provisioning of all loan categories:
(a) Watch list
MFBs shall maintain a watch list of all overdue accounts before they are classified in terms of objective (time-based) criteria. However, such accounts may not be treated as NPLs for the purpose of classification / provisioning.
(b) Government Guaranteed Loans
Classified loans/ advances that have been guaranteed by the Government would not require provisioning to the extent of guaranteed portion. However, markup/ interest on such accounts would be taken to Memorandum Account instead of Income Account.
(c) Subjective Classification
i) In addition to the time-based criteria prescribed in this regulation, subjective evaluation of performing and non-performing credit portfolio may be made for risk assessment purposes and, where necessary, any account including the performing account can be classified. In this case, the category of classification determined on the basis of time based criteria can be further downgraded.
ii) Classification for program-based lending shall be based on objective (time-based) criteria only, though MFBs, at their own discretion, may also classify such portfolio on subjective basis.
iii) To strengthen subjective classification, MFBs may consider financial standing of guarantors.
(d) Reversal of Specific Provisions
In case of recovery against classified loan, other than rescheduling / restructuring under R-9 of PRs for MFBs, MFBs may reverse/adjust specific provision held against classified assets.
(e) Quarterly Review
MFBs shall review, at least on a quarterly basis, the collectability of their loans / advances portfolio and shall properly document the evaluations so made. Shortfall in provisioning, if any, shall be provided for immediately.
(f) Benefit of Forced Sale Value:
MFBs can avail the benefit of Forced Sale Value (FSV) of collateral held against loans / advances as under:
i) Profit arising from availing the benefit of FSV shall not be available for the payment of cash or stock dividend.
ii) The heads of Credit and Risk of respective MFBs shall ensure that FSV used for taking benefit of provisioning is determined accurately and is reflective of market conditions under forced sale situations.
iii) Borrower-wise details of such cases shall be maintained for verification by SBP. In case of misuse of this facility, SBP may also withdraw the benefit of FSV from the concerned MFB.
(g) Responsibility of the External Auditors
The external auditors shall, as part of their annual audits of MFBs, verify that all requirements, as stipulated in this regulation for classification and provisioning, have been complied with.
The intent of ‘charge-off’ is to clear the balance sheet of MFBs, and this shall in no way extinguish the MFBs’ right of recovery of such loans. NPLs shall be charged off as prescribed below:
Loan Categories
Criteria for Charging Off NPLs
General/Unsecured Loans
NPLs shall be charged off, one month after being classified as “Loss.”
Housing Loans
NPLs shall be charged off, one month after 05 years from the date of classification of financing.
Microenterprise Loans
NPLs secured against Mortgaged residential, commercial and industrial properties (Land & building only) shall be charged off, one month after 05 years from the date of classification. All other NPLs shall be charged off, one month after 03 years from the date of classification.
Note: Charge-off means reducing the value of the loans in ‘loss’ category to zero through offsetting the provisions, thus, removing such loans from the balance sheet.
4. Definitions. To add clarity, following terms have been defined:
(a) Housing Finance means financing provided to individuals for the construction, purchase of residential house/apartment and for purchase of plot and construction thereupon. Financing availed for the purpose of making improvements in house/apartment shall also fall under this category.
(b) Mortgage means transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan or finance.
(c) Liquid Assets means assets which are readily convertible into cash without recourse to a court of law and mean encashment/realizable value of government securities, bank deposits, gold ornaments, gold bullion, certificates of deposit, shares of listed companies which are actively traded on the stock exchange, NIT Units, certificates of mutual funds, certificates of investment (COIs) issued by DFIs/NBFCs rated at least ‘A’ by a credit rating agency on the approved panel of SBP, listed TFCs rated at least ‘A’ by a credit rating agency on the approved panel of SBP and certificates of asset management companies for which there is a book maker quoting daily offer and bid rates and there is active secondary market trading. These assets with appropriate margins should be in possession of the MFBs with perfected lien.
(d) Secured means exposure backed by liquid assets, pledged stock, mortgage of land, plant, building, machinery or any other fixed assets, hypothecation of stock (inventory), trust receipt, assignment of receivable, lease rentals, and contract receivables but does not include hypothecation of household goods.
