Banks Directed to Increase Revenue-Based Loans

Revenue-Based Loans

Kazi Abdul Muqtadir has stressed on the banks to work on their loan giving policies such as revenue-based loans. The ex-deputy director of the central bank said on Thursday to give businesses loans considering their annual turnover.

Speaking at a conference, he commented that banks need to increase their liquidity and also expand their funds to improve their stability in the banking world. The conference titled ‘Financial System at Strategic Crossroads – managing the new regulatory and reputation risks’ was organized by Hansuke Consulting – a UK base firm.

He stressed to the point the banks these days are giving tangible collaterals i.e. lending on asset base, but this restricts the established businesses with their flow of funds so Revenue-Based Loans should be encouraged.

He reported, “All over the world, banks grant cash-flow lending and have negligible default rate, a mechanism needs to be established by the regulator to increase financial inclusion, which is the key to economic growth.”

The central bank believes that banks are not well-off in terms of parking their investments in the securities of government. On the contrary, private sector lead by getting their credit to double – as seen in the last fiscal year.

The ex-director further disparaged the government for introducing withholding tax for transactions at bank. “With taxes on banking transactions, no one will be interested in keeping their money with the banks,”. He pointed out to the revenue body and said that they should look into the matter and get it right.

Withholding tax of 0.4 percent was burdened on banking transactions by the Federal Board of Revenue which was to exceed Rs. 50,000/ day by those who did not file for tax returns. Not just this, FBR was also advised by State Bank of Pakistan to focus on deteriorating withholding tax condition. Further, it said to encourage tax return filings so that people could be aware of the benefits attached.

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