KARACHI, April 13: The State Bank has allowed writing off of micro loans after 180 days but has protected the right of micro finance banks to recover loans even after the write-off.
The SBP through a circular on Thursday introduced some changes in the prudential regulations for micro finance banks (MFBs) to bring the existing classification, provisioning and write-off criteria for micro loans in line with the international best practices.
This will result in the following changes in the existing criteria for classification, provisioning and write-off: Elimination of OAEM category, revision of aging criteria whereby now the loans or advances overdue by 30 days or more (but less than 90 days) will be classified as substandard; 90 days or more (but less than 180 days) as doubtful; and 180 days or more will be classified as loss.
Provisioning requirement for substandard category has been increased to 25 per cent. The MFBs will maintain a watch list of all accounts delinquent by 5–29 days. The MFB and MFI will maintain a general provision equivalent to 1.50 per cent of the net outstanding advances (advances net of specific provisions).
All non-performing loans (NPLs) will be written off one month after the loan is classified as “loss”. This will, however, not extinguish the MFBs’ right of recovery of such written-off loans.
Classification and provisioning will be made at the end of every month. The revised criteria will come into force with immediate effect.
