KARACHI, Feb 2: The State Bank on Wednesday announced a procedure for reimbursement of write off of loans outstanding as of Dec 31, 2009 against the borrowers of Malakand, Swat, Buner and Chitral districts. The announcement was made under the prime minister's Fiscal Relief package to rehabilitate economic life in Khyber Pakhtunkhwa, federally and provincially administered Tribal Areas.

A circular issued by SBP said the ministry of finance has released the budgetary allocation for the purpose. Banks, Development Finance Institutions and Microfinance Banks will write off the entire loans outstanding as of Dec 31, 2009 of the borrowers of Malakand, Swat, Buner and Chitral districts, the circular added.

The circular said loans booked in these tribal areas and also booked in areas outside the Malakand, Swat, Buner and Chitral on behalf of businesses operating or located in these districts will also qualify.

Only principal amount of outstanding loans (Performing and NPLs less provisioning) as of Dec 31, 2009 shall qualify for subsidy. However, the circular said that loans disbursed on or after Jan 1, 2010 will not qualify for said relief and the amount of overdue or outstanding mark-up shall also not qualify for the subsidy.

The circular said banks, DFIs and MFBs will bear the cost of such write-offs to the extent of amount held into provision against NPLs and interest in suspense account, while the rest of the cost will be paid by the government of Pakistan as subsidy.

The circular said after internal approvals of write off of total loans in Malakand, Swat, Buner and Chitral districts as per above guidelines, the banks, DFIs and MFBs will submit their claims to the office of SBP-BSC (Bank), Peshawar on a prescribed format duly audited and authenticated by their internal audit up to March 15, 2011. However, it said that the amount reimbursed by SBP-BSC (Bank), Peshawar will be subject to on-site inspection by SBP's Inspection Department and if any amount claimed to be found ineligible, the same will be required to be refunded by the concerned institutions along with a fine of 25pc of amount reimbursed.

“For smooth and timely implementation of the relief package, banks, DFIs and MFBs are advised to stop recovery and accrual of mark-up of all such outstanding loans immediately and make all out efforts to publicise the scheme through advertisements, banners and direct contact with the concerned borrowers,” the circular said.

The reimbursement of banks, DFIs, and MFBs claims of outstanding loans as of Dec 31, 2009 as earlier reported to SME finance department of the SBP, will be full and final settlement of the borrowers' liabilities.

Banks or DFIs or MFBs are required to release all securities or charges held against such loans and issue necessary clearance certificates to the concerned borrowers soon after the receipt of funds from the SBP, the circular added.