KARACHI: The State Bank of Pakistan (SBP) has decided to impose penalty on banks if they fail to meet the mandatory targets for the number of houses and disbursement, said a circular issued on Tuesday.

“It has been decided that penalty will be imposed on banks falling short of their Government’s Mark-up Subsidy Scheme (G-MSS) targets with effect from July 31, 2021 on both targets of number of housing units and amount of disbursements,” said the central bank.

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

Earlier, on 15 July 2020, the State Bank announced through a circular that it has decided to set a mandatory target for banks to extend mortgage loans and financing for developers and builders while the banks will be required to increase their housing and construction of building loan portfolios to at least 5 per cent of their private sector credit by the end of December 2021. The circular was issued following the government’s Naya Pakistan Housing Scheme to build low-income houses.

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

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

The penalty charged on a bank will be adjusted after review of 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, State Bank will, if required, collect information from banks which fail to meet their targets,” said the circular.

In mid of June, last month, the SBP asked banks to come out with their informal income proxy models operational for low-cost housing within four weeks as the process of lending for housing is still much below than the expectations of the government.

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

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

Published in Dawn, July 7th, 2021