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State Bank further explains write-off policy

KARACHI (May 14 2003) : The State Bank of Pakistan (SBP), responding to representations and suggestions made by the trade bodies and chambers, including the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), on SBP guidelines on write-off of irrecoverable loans and advances, has issued detailed clarification to set the record straight, and informed the trade bodies and chambers accordingly.

The SBP said that most of the issues relating to SBP viz (a) extension of expiry date of the scheme, (b) allowing for further financing to those projects settled under the SBP guidelines, and (c) acknowledgement of receipt of application by the banks/DFIs, had already been addressed by SBP vide BPD circular letters No 12, 13 and 14 of 2003.

With regard to other issues and suggestions, the following are SBP advises:

— Period of payment be enhanced from existing three to five years: The period of three years was decided after having lengthy discussions with the banks and FPCCI.

— The borrower will only be eligible for write-off after payment of entire agreed amount.

— The period of three years was considered most appropriate. Any extension in the payment period at this point of time does not seem feasible as it may create problems in the smooth implementation of the scheme. -The main purpose of the scheme is to allow the borrowers/defaulters to repay the entire agreed amount at the earliest and avail benefits of the scheme in the shape of write-offs.

Cases transferred to the CIRC may also be allowed for settlement under the SBP guidelines:

— The cases, which have been transferred to CIRC ie. “Transfer and Assignment Agreement” has been signed between the bank/DFI and CIRC, are not eligible for settlement under the SBP guidelines due to legal complications.

— Sharing of FSV among multiple banks: The SBP has reiterated its stance already conveyed to the All Pakistan Textile Mill Owners Association (APTMA) that legally ultimate authority in this regard does not vest with the SBP

The issuance of any instruction in this regard may create legal complications.

Tax on amount written off under the scheme may be exempted by the Central Board of Revenue (CBR): The SBP, agreeing with the proposal, has already requested the CBR and the Ministry of Finance to issue necessary clarification for tax exemption to those cases, which are being settled under subject SBP scheme. Since such tax matters are dealt with by the CBR for any further clarification in this regard, the matter may, therefore, be taken up directly with the CBR.

Applicability of SBP guidelines to the leasing companies and Modarabas: Leasing sector and the Security and Exchange Commission of Pakistan are regulating Modarabas (SECP) and only the SECP can issue such sort of directives.

The SBP, however, had requested the SECP to also consider issuing similar guidelines, but they are of the view that there is no need, for the time being, for such flexible guidelines.

The SECP has already conveyed its response to trade bodies as well.

Since, no further action seems to be taken at the SBP end, trade bodies may like to take up the matter directly with the SECP.

Request to the SBP to stop banks/DFIs to pursue litigation process against borrowers/ defaulters, who have applied under the SBP guidelines: Issuance of any instructions in this regard would create legal complications, as it is the legal right of the banks/DFIs according to the provisions of prevalent law.

However, as per standard banking practice, both parties can withdraw/withheld legal proceedings with mutual consent.

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