Provision of disinfected currency notes by banks
Recognizing the need for issuance of fit, authenticated and disinfected cash by the banks, detailed instructions have been provided by State Bank of Pakistan (SBP) to ensure to clean, disinfect, seal and quarantine all cash being collected from hospitals and clinics and to block circulation of such cash in the market. The banks shall report daily collection of cash from hospitals to SBP, which shall credit bank’s accounts for the amounts so quarantined by them. Further, arrangements are being made to provide sufficient fresh or disinfected cash to banks enabling them to issue fresh cash or the re-issuable cash that remained in quarantine for at least fifteen (15) days to their clients. Banks have been ensured that SBP has sufficient quantity of such cash, and it would meet all demands for such cash.
Facilitating new investment
SBP announced a ‘Temporary Economic Refinance Facility (TERF)’ and its Shariah compliant version to stimulate new investment in manufacturing. Under this scheme, the SBP will refinance banks to provide financing at a maximum end-user rate of 7% for 10 years for setting up of new industrial units. The total size of the scheme is Rs 100 billion, with a maximum loan size per project of Rs 5 billion. It can be accessed by all manufacturing industries, with the exception of the power sector, where an SBP refinance facility for renewable energy projects already exists.
Relaxing credit requirements for exporters and importers
- Relaxation in matching amount: SBP has reduced performance requirements from twice to one and a half time effective for current year as well as FY-20.
- Extension in time period to meet performance requirements: the time period for exporters to show performance has been extended till Dec-20. This will help the exporters to avail higher limits for FY-21.
- Extension in time period to ship goods: The shipment period has been extended from 6 to 12 months. Therefore, exporters will not be liable to pay penalties due to breach of this condition during January to June 2020.
- Relaxation in conditions for LTFF: the requirement of sales for LTFF has been reduced to 40% or USD 4 million during the period Jan 01, 2020 to Sept 30, 2020. Moreover, the requirement of annual projected exports performance has been extended by another one year.
Realization of export proceeds
SBP has also allowed banks to enhance the time period for realization of exports proceeds from existing requirement of 180 days to 270 days on a case by case basis where the delay is related to COVID-19. Likewise, to facilitate importers, SBP has extended the time period for import of goods into Pakistan against advance payment from existing requirement of 120 days to 210 days.
Exporters can directly dispatch the shipping documents
SBP has allowed exporters to directly dispatch the shipping documents of their exports’ consignment to their foreign buyers without any limit, subject to condition that the exporter’s export over-dues are less than one percent and the exporter has exports of at least USD 5 million during the previous three years.
Limits on advance payments for imports increased
Moreover, SBP has enhanced the existing limit of USD 10,000/, or equivalent in other currencies, per invoice allowed to banks to make advance payment on behalf of manufacturing and industrial concerns and commercial importers for import of raw material, spare parts and machinery, to USD 25,000/.
Charges on fund transfers waived
SBP has instructed banks to waive all charges on fund transfers through online banking channels such as Inter Bank Fund Transfer (IBFT) and SBP’s Real Time Gross Settlement System for customers.
Banks to facilitate education fee and loan repayments
Financial industry has been instructed to immediately facilitate education fee and loan repayments through internet banking or mobile devices.
SBP has introduced following measures to fight the spread of COVID-19 through the financial system by increasing awareness among staff & customers:
- Continuous availability of ATMs.
- Critical functions and systems of banking will remain available.
- Minimum staff at branches.
- NADRA Verisys in place of Biometric Verification.
- Banks to adopt more robust Cybersecurity measures.
- Clearing of Cheques made easier and faster.
Supporting the health care system
SBP announced a ‘Refinance Facility for Combating COVID-19 (RFCC)’ and its Shariah compliant version to support hospitals and medical centers in combating the spread of COVID-19. Under this scheme, the SBP will refinance banks to provide financing at a maximum end user rate of 3% for 5 years for the purchase of equipment to detect, contain and treat the coronavirus. The SBP will provide this facility to banks at 0%. The total size of the scheme is Rs5 billion, with a maximum financing limit per hospital or medical center of Rs200 million. This scheme will help contain the spread of the coronavirus and reduce its human toll. It is available until end-September 2020.
SBP has also allowed all federal and provincial government departments, hospitals in public and private sectors, charitable organizations, manufacturers and commercial importers to make Import Advance Payment and Import on Open Account, without any limit, for the import of medical equipment, medicines and other ancillary items for the treatment of COVID-19. Further, the banks have been allowed to approve Electronic Import Form (EIF) for import of the equipment, donated by international donor agencies and foreign governments to facilitate their seamless and speedy imports.
Reducing interest rates
The outlook for growth and inflation in Pakistan is likely to be revised down further. In the wake of this new information, the MPC agreed at its emergency meeting on 24.03.2020 to take further action. Accordingly, the MPC has decided to cut the policy rate by a further 150 basis points to 11%. This brings the cumulative easing over the past one week to 225 basis points. The MPC was of the view that this cumulative easing would cushion the growth slowdown while protecting inflation expectations.
Relief packages for households and businesses
- Banks’ overall pool of loanable funds has been increased.
- The regulatory limit on extension of credit to SMEs has been permanently increased.
- Borrowing limits for individuals have been increased for one year.
- Payment of principal on loan obligations will be deferred by banks.
- Regulatory criteria for restructuring/rescheduling of loans have been temporarily relaxed till 31st March 2021.
- Margin call requirements against bank financing have been reduced.
[box type=”note” align=”” class=”” width=””]The writer is a Karachi based freelance columnist and is a banker by profession. He could be reached on Twitter @ReluctantAhsan[/box]