Banks, DFIs ignoring SBP guidelines: Loan write-off

LAHORE, Feb 17: In spite of clear instructions from the State Bank of Pakistan, banks and development finance institutions (DFIs) are reluctant to extend to their borrowers the facility to immediately repay the full settled amount (in the cases settled under the SBP guidelines on write-off of irrecoverable loans/ advances) in lump sum on discounted, average lending rates.

In a circular (BPD-32) issued in December last year, the central bank had stated that the step was taken on representations from the banks and DFIs, requesting an incentive on immediate repayment of settlement amount in lump sum instead of repayment in three years as stipulated in the guidelines on the write-off of irrecoverable loans and advances given in the SBP circular BPD-29 in October 2002.

The circular BPD-32 clarifies that the banks and DFIs can provide some incentive to the eligible borrowers who are willing to immediately repay full settlement amount in lump sum keeping in view net present value of future repayments based on their respective average lending rates.

The circular, however, also made it clear to the banks and DFIs that the incentive provided to the borrowers will not be reimbursed by the SBP.

The wilful defiance of the SBP's instructions by the banks and DFIs is causing a lot of anxiety among the borrowers who wish to repay full settled amount if some incentive in the form of reduced interest rates is offered to them, a leading businessman and an office-bearer of the Lahore Chamber of Commerce and Industry told Dawn here on Tuesday.

He said the banks and DFIs should have no objection to the incentive as it would help them recover a better part of their (lost) money immediately. It would also help the borrowers to discharge their liability at discounted interest rates and to revive their sick projects.

In this regard, the LCCI senior vice-president has already sent a letter to the National Bank of Pakistan and other financial institutions requesting them to inform the chamber of the discount rate that they have allowed for the borrowers who wish to settle in lump sum.

LCCI sources say the banks are yet to respond to the chamber's letter which had been sent to them on a number of representations made by the borrowers to the office-bearers of the LCCI.

Meanwhile, the SBP has informed the banks that the prudential regulation (regarding linkage between financial indicators of the borrower and total exposure from financial institution) will not apply in cases where exposure is taken on units/projects revived as a consequence of settlement under the CRISU, CIRC and BPD-29 for a period of five years from the date of such exposure.

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