Banks and development finance institutions (DFIs) have accepted 1.83 million applications from borrowers and have allowed them to defer loan repayments and reschedule markup payments worth Rs1.3 trillion over the past one year.

The debt relief scheme was introduced by the central bank in consultation with the banks and DFIs in March 2020 to help the borrowers cope with the Covid-19 pandemic. Simultaneously, the scheme helped banks to avert losses of billions of rupees.

Had the banks and DFIs not deferred and/or rescheduled the loans and markup payments, they would have suffered significant losses, as millions of people had lost jobs and their capacity to repay debt had weakened in the wake of the Covid-19 outbreak in the country in February 2020.

The central bank offered two different schemes to the borrowers. Under the first scheme, they were offered to delay repayment of principal loan for a maximum of one year, but they were required to continue to pay markup on the loan as per the original schedule.

Banks and DFIs deferred loan repayments worth Rs657 billion under the scheme, which expired in September 2020, the central bank’s latest data showed on Thursday.

Under the second scheme, the State Bank of Pakistan (SBP) offered the borrowers to delay repaying their principal loan for more than 12 months. Besides, they were also offered to reschedule their markup payments.

Banks and DFIs rescheduled loans and markup payments worth another Rs654 billion under the scheme, the SBP data suggested.

The SBP’s loan extension and restructuring package (debt relief scheme) was announced to facilitate the borrowers through the restructuring and deferment of their loans.

“The debt relief scheme aimed to preserve the solvency of the borrowers and enable them to combat the temporary economic disruptions,” the central bank said on its website. The response to the scheme had been overwhelmingly positive and all categories of customers including corporate, commercial and retail borrowers benefited from it, it said.

Out of 1.88 million applications, banks, DFIs and microfinance banks approved 1.83 million (96.92%) till April 2, 2021. Since the launch of the scheme, the individual borrowers, especially the customers of microfinance banks, have been the major beneficiaries.

The restructured and deferred loans include 1.72 million approved applications of customers of microfinance banks involving an amount of Rs121 billion, which approximately constitutes 50% of the total net loan portfolio of microfinance banks (MFBs).

In addition, Rs717 billion out of the total restructured and deferred amount of Rs910 billion relates to corporate and commercial borrowers as corporate loan portfolio of the banking industry, which constitutes 69.9% of the total loan portfolio of banks, DFIs and MFBs.

The central bank introduced several schemes in the wake of the pandemic to help people, corporates and banks cope with the situation. In consultation with the banks, it offered concessionary loans at the rate of 3-5% to help corporates set up new projects and expand their existing production lines, pay salaries to their staff and allow hospitals to acquire equipment to fight against the disease.

Published in The Express Tribune, April 16th, 2021.

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