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KARACHI: The State Bank of Pakistan (SBP) has extended the Deferment of Principal Amount of Loans facility for next three months to provide some more relief to the banks' borrowers in the wake of Covid-19.

Considering the fact that Covid-19 pandemic is continuing to stress the cash flow of small and medium sized businesses and households, the SBP has decided to extend the Deferment of Principal Amount facility up till 30th September 2020.

On March 26th 2020, amid growing concerns about the potential economic impact of the Covid-19 pandemic, State Bank of Pakistan (SBP) with the collaboration of Pakistan Banks Association (PBA) announced a comprehensive set of measures to help businesses and households to manage their finances. Among these, a key measure was the deferment of principal amount of loans and advances by banks and DFIs.

Under the relief package, banks and DFIs were asked to defer the payment of principal on loans and advances by one year to cope with the impact of Covid-19. Borrowers were required to submit a written request to the banks before 30th June 2020 to avail this relaxation.

As the scheme was expired on June 30, 2020 and the pandemic is still hurting the economic activities, the SBP has decided to extend this scheme for next three months.

Considering the prevalent Covid-19 pandemic and the representation of the stakeholders, it has been decided to extend, by ninety days, the last date for submission of the requests by borrowers for deferment of principal. The borrowers, who have not availed the deferment of principal, may now submit their request to the banks/DFIs, up to September 30, 2020, the State Bank said in a circular issued on Tuesday.

This facility will however be available for Small & Medium Enterprise (SMEs) Financing, Consumer Financing, Housing Finance, Agriculture Finance and Micro financing only.

The facility is not being extended to corporate and commercial borrowers since a significant amount of their loans and advances has already been deferred. The SBP expected that more businesses and households, who were not able to avail the facility, will benefit from this extension. The SBP has advised banks and DFIs to follow the revised instructions in letter and spirit as any deviation or non-compliance of the same shall attract punitive action under the relevant provisions of the Banking Companies Ordinance, 1962.

According to the SBP, under this facility, businesses and households could request for the deferment of their loans and advances for a period of one year, albeit continuing to service the mark-up amount. The measure also ensured that the deferment of principal will not affect borrower's credit history and such facilities will not be reported as restructured/rescheduled in the credit bureau's data.

This measure proved extremely helpful for borrowers and is evident from the fact that up till 3rd July 2020, banks deferred Rs 593 billion of principal amount of loans of over 359,000 borrowers. A very large number of borrowers some 95 percent of total beneficiaries of this scheme, as of July 3, 2020 have been small borrowers including SMEs, consumer finance, and microfinance. Overall, banks and DFIs have received applications from 1.2 million borrowers with outstanding amounts of Rs 2.3 trillion under this scheme.

Copyright Business Recorder, 2020