Banks requested to meet home loan target or face punishment

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The depository financial institution of Pakistan (SBP) has decided to impose a penalty on banks if they fail to satisfy the mandatory targets for the number of homes and disbursement, said a circular issued on Tuesday.

“It has been decided that penalties are going to be imposed on banks falling in need of their Government’s Mark-up Subsidy Scheme (G-MSS) targets with effect from July 31, 2021, on both targets of a number of housing units and amount of disbursements,” said the financial institution.

It appears that the banks are still reluctant to increase loans for the low-income housing projects or houses creating frustration among the government’s top ranks. The government’s prime agenda was to supply 10 million jobs and 5 million low-income houses but after three years, there’s no visible check in this direction. The county is claimed to be facing a shortfall of 10 million houses.

Earlier, on 15 July 2020, the depository financial institution announced through a circular that it’s decided to line a compulsory target for banks to extend mortgage loans and financing for developers and builders while the banks are going to be required to increase their housing and construction of building loan portfolios to a minimum of 5 percent of their private sector credit by the top of December 2021. The circular was issued following the government’s Naya Pakistan Housing Scheme to create low-income houses.

In April, the SBP assigned monthly mandatory targets of a number of housing units and amount of disbursements to banks in proportion to share in total banking assets.

“A baseline penalty is going to be charged on shortfall from cumulative targets till July 31, 2021, while a higher penalty is going to be charged on shortfall from targets of subsequent months,” said the newest circular issued on Tuesday. Banks are expected to form all-out efforts to harness the full potential of the scheme, said the SBP.

The penalty charged on a bank is going to be adjusted after review of the bank’s efforts in terms of logins of applications, approvals of housing finance, results of SBP’s latest mystery shopping surveys, involvement of bank’s management, evidence of board information, and support, sale, and marketing efforts, innovation in delivery channels, capacity building of staff and human resource (headcount) involved in G-MSS, said the SBP.

“To assess efforts, depository financial institutions will, if required, collect information from banks which fail to satisfy their targets,” said the circular.

In mid of June, last month, the SBP asked banks to return out with their informal income proxy models operational for low-cost housing within four weeks because the process of lending for housing remains much below the expectations of the govt.

The SBP said that so as to facilitate low-cost housing finance applicants with informal income, banks were asked to develop and deploy an income estimation model for the extension of low-cost housing finance to such applicants.

The SBP believes that this estimation model is predicted to ease difficulties being faced by the general public in availing housing finance under G-MSS, commonly referred to as Mera Pakistan Mera Ghar.

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