State Bank of Pakistan announced new regulation relaxation for banks over low cost house financing
The State Bank of Pakistan has announced five regulatory relaxations to incentivize banks for financing low-cost and affordable housing, a statement issued by the central bank on Friday read.
Firstly, the definition of low-cost housing finance used in the current regulations for banks has been aligned with definition used under Government Markup Subsidy Facility for Housing Finance eligible under Tiers I & II of housing finance. Specifically, in the SBP regulations, the value of housing unit has been increased from Rs3 million to Rs3.5 million with maximum loan size increased from Rs2.7 million to Rs3.15 million.
Consequently, the incentive for low cost housing finance will increase for banks as they will not only be able to enjoy markup subsidy facility by the Government but the regulatory incentives under low cost housing finance by SBP as well.
Current regulations and banking practices require banks to obtain documentary evidence of income. Provision of this information is difficult for people generating income from informal sources which are generally in low income segments. In order to facilitate financing for this segment, SBP is urging the banks to use alternate methods to identify income sources and assess the credit worthiness of the borrower.
The 2nd and 3rd type of relaxations are being given to facilitate financing for this segment. Accordingly, under the 2nd relaxation, banks have been exempted from the requirement of using ‘verifiable income’ for the purpose of calculating Debt Burden Ratio (DBR) in case of low cost housing finance where banks are using income proxies and where income of borrower is not verifiable. Resultantly, borrowers with ‘non-verifiable income,’ estimated by banks using income proxies, will also become eligible to avail low cost housing finance.
Thirdly, banks have also been exempted from the requirement of observing DBR, in case of low cost housing finance, where banks are using repayment surrogates like rent, utility bills, telco bills, etc. to assess repayment capacity of borrower. Hence, borrowers without verifiable or non-verifiable income will become eligible to avail low cost housing finance.