The Chief Executives,
All Banks / DFIs.
Dear Sirs / Madam,
PRUDENTIAL REGULATIONS
Please
refer to the Prudential Regulations issued vide BPD Circular
No. 35 dated the 28th October, 2003.
2.
It has been decided to make the following amendments / clarifications
in respect of the Prudential Regulations mentioned as under:
(I)
DEFINITIONS
Definition
of 'Equity of the Borrower'
In the definition of “Equity of the Borrower”
given in the Prudential Regulations for Corporate / Commercial
Banking, and SMEs Financing at serial number 9 and 8 respectively,
the following paragraph is added after the first paragraph:
“The
Preference Shares, only with the following features, will
also be included in the equity of the borrower:
• There should not be any provision for redemption
or the redemption should be at the option of the issuer.
• The terms and conditions should not give rise to
a contractual obligation on the part of the issuer to deliver
another financial asset or exchange another financial instrument
under conditions that are or can be potentially unfavourable
to the issuer.
• The terms and conditions of the preferred shares
should not be such as to compel the issuer economically,
financially or otherwise to redeem the shares.
• Payment and distribution of dividend to the holders
of preferred shares, whether cumulative or non-cumulative,
should be at the discretion of the issuer."
Definition
of 'Group'
In the definition of “Group” as given in the
Prudential Regulations for Corporate / Commercial Banking
and SMEs Financing at serial number 14 and 12 respectively,
following amendments are made:
i)
Clause “e” in the definition of the group is
deleted.
ii) The shareholding in the Government owned entities will
not constitute substantial ownership / affiliation for the
purpose of clause “c” in the definition of the
Group. Resultantly, neither the Government owned entities
will be considered as group concern of a corporate group
/ company / individual holding 10% or more shareholding
in these Government entities nor the shareholding in the
Government entities will be construed to form any group.
Definition
of "Small and Medium Enterprise"
In the definition of “Small and Medium Enterprise”
given at serial number 21 of the Prudential Regulations
for SMEs Financing, the following amendment is made:
In
the first paragraph of the definition, after the words “manufacturing”,
the words “/trading” will be inserted and before
the words “service concern”, the words “trading/”
will be deleted.
It
is also clarified that an Individual, if he or she meets
the criteria given in the definition, can also be categorized
as an SME.
(II)
CRITERIA FOR REVERSAL OF PROVISION
Para
9 of R-8 in the Prudential Regulations for Corporate / Commercial
Banking, and Para 8 of R-11 in the Prudential Regulations
for SMEs Financing are replaced with the following:
"In case of cash recovery, other than rescheduling
/ restructuring, banks / DFIs may reverse specific provision
held against classified assets, subject to the following:
i) In case of Loss account, reversal may be made to the
extent that the remaining outstanding amount of the classified
asset is covered by minimum 100% provision.
ii) In case of Doubtful account, reversal may be made to
the extent that the remaining outstanding amount of the
classified asset is covered by minimum 50% provision.
iii) In case of Substandard account, reversal may be made
to the extent that the remaining outstanding amount of the
classified asset is covered by minimum 20% provision.
Further,
the provision made on the advice of State Bank of Pakistan
will not be reversed without prior approval of State Bank
of Pakistan."
(III) PRUDENTIAL REGULATIONS FOR CORPORATE / COMMERCIAL
BANKING
Regulation
R-1 (Annexure-I)
1.
Para ‘A’ of the Annexure-I should be replaced
with the following:
"100%
of the deposits placed with lending bank / DFI, under perfected
lien and in the same currency as that of the loan, shall
be excluded."
2.
Para ‘B’ of the Annexure-I should be replaced
with the following:
“90%
of the following shall be deducted;
(i) deposits placed with the lending bank / DFI, under perfected
lien, in a currency other than that of the loan;
(ii) deposits with another bank / DFI under perfected lien;
(iii) encashment value of Federal Investment Bonds, Pakistan
Investment Bonds, Treasury Bills and National Saving Scheme
securities, lodged by the borrower as collateral; and
(iv) Pak. Rupee equivalent of face value of Special US Dollar
Bonds converted at inter-bank rate, lodged by the borrower
as collateral.”
3.
At the end of Para ‘F’, following proviso is
added:
“The
banks / DFIs shall, however, ensure that the overall limit
for each financial institution in respect of inter-bank
placements, is invariably approved by their Board of Directors.”
Regulation
R-6 (1.A "d")
Para 1.A "d" of the Prudential Regulation R-6
is replaced with the following:
"take
exposure on any person against the shares/TFCs issued by
that person or any of his group companies. For the purpose
of this clause, person shall not include individual."
Regulation
G-1 (Para C) "Management"
Para C of the Regulation G-1 is replaced with the following:
“1.
No member of the Board of Directors of a bank / DFI holding
5% or more of the paid-up capital of the bank / DFI either
individually or in concert with family members or concerns
/ companies in which he / she has the controlling interest,
shall be appointed in the bank / DFI in any capacity save
as Chief Executive of the bank / DFI (which should not exceed
one in any case). Further, paid executives of the bank /
DFI appointed as directors on the Board should not be more
than 25% of the total directors.
2.
The banks / DFIs may pay a reasonable and appropriate fee
to their non-executive directors for attending meetings
of the Board of Directors or committees constituted by the
Board, in addition to the payment for traveling including
conveyance for the above purpose and boarding and lodging.
However, the amount of fee paid to the non-executive directors
for attending each such meeting, along with the total expenditure
to be incurred under this head during the year, should be
got approved post facto in the Annual General Meeting. It
may please be ensured that except as mentioned above, no
other payment or perquisites will be paid to the non-executive
directors. Furthermore, no consultancy or allied work will
be awarded to the non-executive Directors or to the firms
/ institutions / companies etc. in which they hold substantial
interest."
Regulation
G-2, Para 2(b)
Para 2(b) of the Regulation G-2 should be replaced with
the following:
“take any exposure on any of their directors or to
individuals, firms or companies in which they or any of
their directors, either directly in the borrowing entity
or in any of its group companies, hold key management positions,
or are interested as partner, director or guarantor, as
the case may be, their Chief Executives and shareholders
holding 5% or more of the share capital of the bank / DFI,
including their spouses, parents, and children or to firms
and companies in which they are interested as partners,
directors or shareholders holding 5% or more of the share
capital of that concern, without the approval of the majority
of the directors of that bank / DFI excluding the director
concerned. The facilities to the persons mentioned above
shall be extended at market terms and conditions and be
dealt with at arm length basis."
(IV)
PRUDENTIAL REGULATIONS FOR CONSUMER FINANCING
Loans
Contracted Before the Issue of New Prudential
Regulations (Credit Cards & Auto Loans)
The
Credit Card limits sanctioned in excess of Rs 500,000/-
against the hypothecation of household goods, prior to October
28, 2003 may be continued by the banks / DFIs under the
old terms and conditions till the termination of this relationship.
Likewise, auto loans provided to purchase vehicles older
than five years prior to the issue of Prudential Regulations
may also be continued under the old terms and conditions
till their maturity.
Clean
Limits Under Credit Card & Personal Loans
It is clarified that the unsecured limits of Rs 500,000/-
prescribed both for credit cards and personal loans are
independent of each other, and may be obtained by a single
borrower at the same time, provided the lending bank / DFI
is satisfied with the risks associated with such transactions.
Regulation
R-7 (Maximum Card Limit)
The Regulation R-7 should be replaced with the following:
"Maximum
unsecured limit under credit card to a borrower (supplementary
cards shall be considered part of the principal borrower)
shall not exceed Rs 500,000/. The banks / DFIs may allow
financing under the credit card scheme in excess of the
limit of Rs 500,000/- (up to Rs 2 million), provided the
excess amount is secured appropriately. All credit card
limits in excess of Rs 2 million should be secured against
liquid assets.
For
Charged Cards, pre-set spending limits generated by the
standardized systems, as is the global practice, shall be
allowed.”
Regulation
R-9 (Prohibition on Financing Commercial Vehicle)
It is clarified that light commercial vehicles also used
for personal purposes can be financed by banks / DFIs under
Prudential Regulations for Consumer Financing.
Regulation
R-27 (Minimum Clean-Up Requirement of 15%)
It is clarified that the banks / DFIs who require their
customers to repay a minimum amount each month, will be
considered compliant with this regulation subject to the
condition that the aggregate cumulative monthly installments
exceed the 15% clean up requirement and accordingly the
loans where the specified minimum repayments are being made
by the borrowers regularly by the customers will not require
classification under this regulation.
(V)
PRUDENTIAL REGULATIONS FOR SMEs FINANCING
Regulation
R-2 (Personal Guarantees)
It is clarified that the facilities secured against liquid
assets shall be exempt from the requirement of personal
guarantees.
(VI)
PRUDENTIAL REGULATIONS FOR SMEs FINANCING AND CONSUMER FINANCING
Exposure
Against Shares / TFCs
It is clarified that the restrictions prescribed under paragraph
1.A of R-6 of the Prudential Regulations for Corporate /
Commercial Banking will also be applicable in case of SMEs
Financing as well as Consumer Financing.
3. All other instructions on the matter will, however, remain
unchanged.