Circulars/Notifications - Banking Policy Department  
 BPD Circular No. 27
October 7, 2002  

The Presidents/Chief Executives

All Banks

Dear Sirs/Madam,

 

HYPOTHECATION AGAINST CONSUMER FINANCING

 

State Bank is in the process of formulating instructions/guidelines for consumer financing to encourage and facilitate banks to take exposure in the subject area with prudent banking practices. Apart from the guidelines being developed by the Sate Bank, the banks are also required to take steps for strengthening their credit risk management processes to protect them from adverse conditions associated with imprudent lending practices. 

2.     Meanwhile, in order to facilitate consumer finances allowed primarily against hypothecation of goods, it has been decided that the following conditions shall not be applicable with regard to hypothecation against credit card advances, financing to purchase consumer durables and personal loans:

  • Registration of charge.

  • Insurance of the hypothecated goods.

  • Stock report.

  • Periodical inspection of the hypothecated goods.

  • Valuation 

3.      The waiver of above formalities on consumer hypothecation may be allowed by the lending banks only after fulfillment of other necessary requirements to their satisfaction as laid down in their   credit policy/manual. This should be viewed as a facilitating step towards broadening the base of consumer financing, while ensuring at the same time strict adherence to prudent credit risk evaluation practices.  

4.       All other instructions on the subject shall, however, remain unchanged. 

5.       Please acknowledge receipt.



Yours faithfully,
(Muhammad Kamran Shehzad)
Joint Director

BPD Circulars/ Circular Letters issued in 2003
       
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