Last update: Tue, 09 Feb 2016 02pm

Prime Minister's loan scheme: some banks finding it difficult to honour pledges

Private and Provincial banks have yet to lend even one rupee under the Prime Minister's Youth Business Loan Scheme (PMYBL). Source said that according to State Bank of Pakistan as many as 23 private and provincial banks promised to provide financing for the scheme; however a number of them have not responded to the follow-up correspondence of SBP.

Sources close to Finance Minister Ishaq Dar stated that a private bank, which had committed Rs 2 billion for PMYBL, has stated that there should be voluntary participation of private banks with no ceiling imposed by SBP and risk coverage should be 50 percent of the Scheme. However, thereafter, despite SBP follow up with this bank through letters and telephone, no response has been received, stated SBP.

Another private bank that also committed Rs 2 billion informed SBP that it would launch the PMYBL product by the end of first quarter of 2015. The bank further stated that it is currently in the process of procuring MIS/IT for managing and reporting the PMYBL portfolio. The bank has also finalized the legal vetting of charge documents.

A third bank has also conveyed to the SBP that it would provide financing of Rs 2 billion. After the approval of Board of Directors (BoD), the scheme will initially be available at SME hub branches located in main cities and defined timelines for the launch of the scheme will be communicated by the bank shortly. A large network bank has informed the SBP that it would provide Rs 2 billion for PMYBL and stated in response that it had drafted product programme, which will be presented for approval of board in its meeting to be held in December 2014-January 2015.

Three other banks have also pledged to provide Rs 2 billion each for the scheme. They have submitted detailed implementation plans and stated that their products mostly comply with PMYBL-approved parameters with the exception that the bank requires government servants to be of grade 17 or above and guarantor's net worth must equal to 2 times the financing amount. One of these banks further stated that it intends to initially extend loans in Karachi and Lahore where psychometric testing facility is available.

Some other banks had committed Rs 1 billion each for PMYBL scheme. A provincial bank has offered a similar product, however SBP has declined its request and advised the bank to participate in PMYBL. Thereafter, a response from the Bank is still awaited. A foreign bank has indicted that it is aligning processes and credit underwriting standards. It stated that its team would meet SBP officials and would then decide the way forward. However, no such formal meeting request has been made by the bank.

Another bank has revealed that details of the PMYBL are under consideration for approval of its BoD and the bank would arrive at a decision for PMYBL participation in the first quarter of 2015.

A Middle East-based bank has indicated that it will soon be converted into full-fledged Islamic Bank; hence bank will be able to participate in PMYBL only after this process is completed. The SBP while approving their request has advised the bank to submit a tentative timeline by which the bank would be announcing/launching a Shariah-compliant PMYBL product.

Smaller banks have voluntarily committed Rs 500 million each for PMYBL. One of them has indicated that its credit committee has approved the PMYBL product, which will be submitted to Board of Directors (BoD) for approval. SBP has advised the bank to update its timeline by which the product will be launched.

A leading Islamic bank has informed the SBP that it is in the process of developing a Shariah-compliant PMYBL product, which is expected to be launched in the first quarter of 2015. Another bank submitted a strategy paper for extending loans under PMYBL and has briefed the SBP officials about their preparedness for launching PMYBL; it stated that they would soon request SBP to relax their Advance Deposit Ratio (ADR) and certain remission on Capital Adequacy Ratio before moving forward towards extending loans under PMYBL. However, no such request has been made by that bank as yet.

Another foreign bank has stated that their PMYBL product has been approved by Central Credit Committee and the bank is making necessary arrangements for the launch of its PMYBL product in the first quarter of 2015.

A small bank, which committed Rs 250 million, has requested time to hire staff and develop a system to handle PMYBL programme. The bank subsequently stated that it is in the process of developing the framework for the PMYBL Scheme. The bank officials also discussed designing of their PMYBL Product and suggested increasing the credit risk loss sharing from existing 5% to 10% and also accepting as collateral the mortgaged property held in the name of family members of the loan applicant.

An Islamic bank, which committed Rs 250 million, stated that it has developed its product for PMYBL product in line with approved parameters of PMYBL. The bank has yet to launch the scheme. Another Islamic bank has committed Rs 250 million for PMYBL. Some small banks that committed Rs 100 million each are yet to launch their products.

Copyright Business Recorder, 2015