The Presidents/Chief Executives
Of All Banks

Dear Sir,

In order to curb the rising trend of writing off of loans, mark-up and other dues by banks, following guidelines are issued for meticulous compliance: _

1. Bad/irrecoverable loans may be continued to be written off by banks themselves with the approval of their respective Board of Directors.
2. Before considering write off proposals placed before it the competent authority will ensure:

   i) That the write off proposal is duly audited by the Internal Auditor who would be required to early indicate whether any deviation from the credit policy approved by the Board tool irregularity or slackness that occurred during the disbursement, documentation or subsequent monitoring of security or operations should be distinctly spelt out. The names and designation of officers/staff responsible for various lapses in handling the advance, which has become bad leading to its write off in full or part, and action taken against them be also specified.

   ii) That the latest valuation of properties, stocks held as security against advances indicating present market value as well as forced sale value duly assessed by an approved surveyor is produced. No write off be allowed if the forced sale value of the security held by the bank is more than the outstanding amount recoverable.

   iii) That all liquid assets including FDRs, Government Securities, Share Certificates held under lien and pledged goods etc., have been realized and sale proceeds thereof appropriated towards adjustment of outstanding.

   iv) That the borrower/guarantor has no know means or repayment.

   v) That borrowers have not created other business interests and assets out of the non-performing loan proposed to be written off.

   vi) That no criminal misappropriation of stock or other movable.immovable securities by the borrower was involved.

3. Instructions issued in detail regarding debt restructuring and rescheduling as contained in circular No.BID(Gen)/2470/601-04-90 dated 17-06-1990 be followed. Banks should note that while rescheduling or restructuring is permissible, it should not be done simply to break time frame and to allow unwarranted improvement in the classified category of loan.
4. The write off of loans, if any, in the names of Directors or their relatives/ dependents/concerns in which they have any interest and in the names of Chief Executives of the bank require prior approval of the State Bank.
5. Full particulars of loans written off should be reported to the Credit Information Bureau of the State Bank.

The above supersedes the instructions contained in BID Circular No.4 dated 5^th July, 1994.

Further, with a view to ensuring good credit administration and minimize the impact or writing off loans and advances banks are advised to meticulously follow the credit policies framed by their Board of Directors and approved by State Bank of Pakistan.

Please acknowledge receipt.

Yours faithfully,    
(ZAFAR HASNAIN SIDDIQUI)
Director         

Endt.No.BSD(Admn)/2432-2446/571-B-99. Of date

Copy forwarded for information to:-

1. The Director, Banking Policy and Regulations Department/ BSD-III / Agricultural Credit Department/Foreign Exchange Department/Credit Information Bureau, State Bank of Pakistan, Central Directorate, Karachi.
2. P.S to Governor, State Bank of Pakistan, Central Directorate, Karachi.
3. P.A. to Deputy Governor-I, State Bank of Pakistan, Central Directorate, Karachi.
4. P.A to Deputy Governor-II, State Bank of Pakistan, Central Directorate, Karachi.
5. P.A to Chief Economic Adviser, State Bank of Pakistan, Central Directorate, Karachi.
6. P.A to Chief Foreign Exchange Adviser, State Bank of Pakistan, Central Directorate, Karachi.
7. P.As to Executive Directors, State Bank of Pakistan, Central Directorate, Karachi.