The President/Chief Executives

All Banks/DFIs.

Dear Sirs/Madam,

PRUDENTIAL REGULATIONS FOR CORPORATE AND COMMERCIAL BANKING
UTILIZATION OF UNSECURED/CLEAN LOANS FOR SUBSCRIPTION IN
INITIAL PUBLIC OFFERING (IPO) REGULATION R-6(1A-b)

Please refer to Para 1A(b) of Regulation R-6 of Prudential Regulations for Corporate and Commercial Banking, issued vide BPD circular No 35 of 2003.

2. The purpose of the above regulation is to prevent utilization of clean loans for subscription in Initial Public Offering (IPO). However, some cases have been identified by the State Bank in its regular inspections, where clean/unsecured consumer loans were utilized for the subscription in IPO.

3. While the State Bank’s intent in this respect is not to create any undue hindrance in the smooth flow of consumer financing to the borrowers, the banks/DFI are, however, advised to institute necessary checks, so that clean loans are not used for subscription in IPO. In this connection, State Bank of Pakistan suggests the following two minimum requirements;
a) At the time of sanction of a clean consumer loan/credit line, the banks/DFIs should obtain an undertaking from the client, that the drawings from the loan account will not be used for subscription in an IPO.
b) The banks should introduce an internal system, whereby, no cheques, drafts and/or payment instructions will be made for an IPO subscription account from a clean personal loan/ credit line account.

4. Other instructions on the subject will remain unchanged.

5. Please acknowledge receipt