ISLAMABAD:

A National Assembly panel on Thursday deferred approval of a law that would empower banks to take over a property after 42 days of serving the first default notice and deprive the owner of legal relief without first satisfying the financial institution.

The National Assembly Standing Committee on Finance put off approval of the Financial Institutions Recovery of Finances Amendment Bill 2026. The bill was presented to address concerns of banks, which was seen as a hurdle to fulfilling Prime Minister Shehbaz Sharif’s desire to provide subsidised loans for the construction of 500,000 homes over four years. However, members of the committee did not immediately endorse the bill even after an amendment that increased the number of days from 42 to 90 before a bank could take over the property.

The proposed law denies property rights, fundamental rights and the due process to borrowers, remarked MNA Jawed Hanif, whose voice helped delay the bill. There was also confusion over the draft, as some amendments were made after its introduction in the National Assembly in January this year.

The law ministry briefed the committee that the bank’s right to take over possession of a property was not constrained even if the borrower went to the banking court.

PM Sharif has announced the provision of loans for constructing 500,000 homes over four years, with a maximum loan of Rs10 million at an interest rate of 5% for 10 years. However, according to the law, where a customer defaults on mortgage money, the financial institution may send a first notice, demanding payment within a period not less than 14 days from the date of the notice. If the borrower fails to make payment within the stipulated period, the financial institution shall, upon expiry of that period, serve a second notice, demanding payment within a further period of not less than 14 days.

If the borrower continues to default upon expiry of the period specified in the second notice, the mortgager shall demand payment of the outstanding amount within a period of 14 days through a final notice. This brings the total period to take over a property to a mere 42 days. The proposed law states that on the third default, the financial institution may proceed to sell the property. The committee was surprised to know that the bank could sell the property even without first getting it vacated. After selling the property, the financial institution would have the right to get the house vacated by using services of the district administration, says the proposal.

According to Clause 13, the banking court shall not grant an injection to restrain any sale or proposed sale of mortgaged property, until and unless the financial institution is put on notice and is heard, and the banking court is satisfied that no mortgage in respect of the immovable property has been created, states the bill. Further protection is also provided to banks. According to the proposal, no suit, prosecution or other legal proceedings shall lie against any financial institution or any of its officers or managers exercising any of the rights of the financial institution for anything done or to be done in good faith under the ordinance.

Standing Committee Chairman Syed Naveed Qamar explained that a couple of amendments had been proposed in the government’s bill, including increasing the time to 90 days and the right of borrower to reschedule and restructure the debt during the notice period. “We have to balance the interest of financial institutions and clients to promote housing finance and for that we have to address some of the concerns of banks,” said Qamar. The bill provides a legal framework for the recovery of funds by financial institutions, including the enforcement of mortgage rights.

The government has an overambitious plan to give 500,000 housing loans over four years, said Housing Secretary Captain (Retd) Mohammad Mehmood. In the next fiscal year, 100,000 loans would be extended, requiring a Rs72 billion subsidy, he said. The proposed target of financing 500,000 housing units with an estimated Rs3.2 trillion interest subsidy and risk-sharing cost presents a significant challenge to the financial sector, considering the current scale and capacity, said the housing secretary.

Naveed Qamar questioned the rationale of setting the 500,000 units target when there was no fiscal space to provide subsidies. “We are committed to providing the fiscal space, if there is an uptick in loan disbursements,” said Finance Minister Muhammad Aurangzeb.

However, Finance Secretary Imdadullah Bosal maintained that the fiscal space was limited and other subsidy schemes may have to be reviewed to create space, including the Public Sector Development Programme. “There will be trade-offs and we will give funds for the PM’s housing scheme,” he said. The committee was informed that so far 25,304 applications had been received for housing loans and about 9,000 were approved. Banks have approved Rs37.1 billion in financing but only Rs5.1 billion has been disbursed against 1,845 cases.

Banks had rejected 2,613 cases, indicating a higher rejection rate, said MNA Sharmila Faruqi. There was a high documentation requirement that forced borrowers to provide 27 documents before getting a loan, which slowed down the approval process, said the housing secretary, adding that the government was planning to launch a pilot project in Punjab, where the borrowers would need to submit only one document.

Since the creation of Pakistan, only Rs246 billion had been given in housing loans to 64,836 clients and the key reason was the lack of protection available to commercial banks, said Captain Mehmood.