Deflecting political pressure: SBP suspects NBP of inflating loan scheme

Bank was under pressure to increase size of PM’s business loan programme

ISLAMABAD: The State Bank of Pakistan (SBP) launched a probe against the National Bank of Pakistan (NBP) on Thursday on suspicion of irregularly inflating the size of the Prime Minister’s Business Loan Programme by nearly Rs8 billion in a desperate attempt to deflect political pressure.

The government-run bank transferred about Rs8 billion in thousands of accounts opened a couple of months ago under the business loan scheme, but lien marked these accounts, according to sources who cited a circular issued by the bank.

Practically, borrowers cannot draw money from their accounts after lien marking.

The money was transferred even when none of the new beneficiaries fulfilled the formalities for obtaining loan.

Prior to this, the NBP issued a circular titled ‘Prime Minister’s Youth Business Loans Policy Revision & Process Amendments on December 27, 2016’. The purpose of the revision and putting lien on accounts was to inflate the size of the loans and the number of borrowers in a bid to deflect pressure from the federal government, the sources said.

The bank also breached the trust of the political leadership by telling half-truths, said the sources.

“The SBP is assessing whether the NBP indulged in window-dressing by lien marking the PMYBL accounts,” said Abid Qamar, the chief spokesperson of the SBP.

The NBP transferred the loaned amounts in as many as 5,000 cases, which were a year and a half old, said Leila Khan, the Chairperson of the PMYBL scheme.

She said that the money could be withdrawn only after accountholders completed all procedural formalities.

Leila Khan said that the government would never press the NBP to relax criteria and this is evident from the fact that the PMYBL recovery ratio was almost 94 percent.

She said that she would meet SBP officials next week to ensure that the NBP did not violate central bank’s regulations.

The prime minister launched the scheme in December 2013 to provide loans of up to Rs2 million to prospective applicants, especially the youth.

He was targeting to disburse nearly Rs200 billion among unemployed persons.

The SBP apparently viewed this as an act of window-dressing but has not yet arrived at a conclusion, said the sources.

The NBP was under pressure to increase the size of the PMYBL loans, which stood at just Rs7.7 billion by the end of August last year. The NBP move increased the disbursement volume to Rs17.1 billion but ended up violating Prudential Regulations of Corporate and Commercial Banking revised by the central bank in 2009.

According to the regulations: “Banks/Development Financial Institutions shall refrain from adopting any measures or practices whereby they either artificially or temporarily show an ostensibly different position of bank’s/DFI’s accounts as given in their financial statements”.

In late December last year, the NBP issued a circular and marked all bank accounts of new borrowers as liens, granting the head office the authority to retain the loan in the account despite transferring it in borrower’s name.

“In all cases where offers have been accepted and customers’ accounts have been opened, the PMYBL system shall generate a request for lien marking equivalent to each customer’s project cost in the customers’ funding accounts with specific instructions that the lien could only be removed by the CAD,” read the NBP circular.

The circular bears the signatures of two Executive Vice-Presidents – Zubair Mirza and Mohammad Ajmal, instead of by the Group Chief Mudassar Khan.

The bank apparently resorted to this after the prime minister expressed dissatisfaction over the pace of disbursements to prospective clients in general and denial of credit to applicants in particular.

The prime minister also ordered the SBP to investigate the high rejection rate.

The PM expressed dissatisfaction during a visit to the NBP headquarters in August last year.

During the same meeting, the then President NBP, Iqbal Ashraf, had committed that the figure would be increased to Rs17 billion and the bank would give loans to a total of 13,500 borrowers by the end of 2016.”

At that time the NBP had disbursed just Rs7.7 billion among 8,139 clients.

NBP’s Executive Vice-President Zubair Mirza did not respond to request for comments despite repeated attempts.

The NBP circular created serious problems for branch managers.

Previously, the branch used to take in applications and cases were sent to the regional office for processing.

Published in The Express Tribune, March 4^th, 2017.