CHAPTER
XIX
LOANS,
OVERDRAFTS AND GUARANTEES
Part
A – Rupee Loans
-
Regulations
governing Loans and Guarantees.
-
Definition
of Foreign Controlled Companies.
-
General permission for
lending to Foreign Controlled Companies for working capital.
-
Local
Borrowings for Capital Expenditure.
-
Borrowings
by Individual Foreign Nationals.
-
Loans
and Overdrafts to Non-Residents including Loans for Purchase
of Residential Plots/Houses/Flats by Overseas Pakistanis.
-
Loans
and Overdrafts against Guarantees of Non-Residents or against
Collateral held outside Pakistan.
Part
B- Foreign Private Loans
-
Private
Foreign Currency Loans.
-
Pay-As-You-Earn
(PAYE) Scheme.
-
Features
of the Scheme.
-
Procedure
for import of machinery and registration of repayment schedule.
-
Re-payment
under Pay-As-You-Earn Scheme.
-
Payment
of Penalty-Head of Account.
-
Re-payments
under loans/credits other than PAYE Loans.
-
Repatriable
Foreign Currency Loans by Foreign Controlled Companies.
-
Foreign
Currency Loans For Financing Exports.
-
Foreign
Currency Loans for Working Capital and other purposes.
-
Short
term Borrowings in Foreign Currency by Authorised Dealers.
-
Long
Term Loans by Authorised Dealers.
-
Loans
and Advances by Authorised Dealers in Foreign Currency.
Part
C- Guarantees etc.
-
Guarantees
on behalf of Foreign Controlled Companies.
-
Guarantees
on behalf of Residents of Pakistan in favour of Non-Residents.
-
Guarantees
on behalf of Non-Residents in favour of Residents of Pakistan.
-
Performance/Bid
Bond Guarantees.
-
Remittances
under Guarantees or Performance Bonds and their Reporting
to the State Bank.
-
Opening
of Letters of Credit and Advising of Negotiations under Export
Letters of Credit.
-
Guarantees
which may be given without Prior Approval.
-
Guarantees
and Collaterals in favour of Overseas Bank Branches and Correspondents.
-
Renewal
of Loans and Overdrafts.
Part
A – Rupee Loans
1.
Regulations governing Loans and Guarantees.
Extension
of loans, overdrafts and credit facilities to companies (other
than Banking Companies) which are by any means controlled directly
or indirectly by persons resident outside Pakistan and to residents
against guarantees or collaterals lodged outside Pakistan, obtaining
of loans and overdrafts in foreign currencies and giving of guarantees
on behalf of residents of Pakistan in favour of non-residents
or on behalf of non-residents in favour of residents, are regulated
under sub-section (2) of Section 18 and Sections 4 and 5 of the
Act. This chapter contains the general regulations covering grant
of such loans, overdrafts, credit facilities and guarantees.
2. Definition of
Foreign Controlled Companies.
Section
18(2) of the Act imposes restrictions on lendings to any company,
not being a banking company, which is by any means controlled,
whether directly or indirectly, by persons resident outside Pakistan.
For the purposes of this section a company, which term includes
a firm, branch or office of a company or firm, is deemed to be
controlled directly or indirectly by persons resident outside
Pakistan, if
(i) it is a branch office
of a company incorporated outside Pakistan, or
(ii) in the case of partnerships,
if
(a)
50% or more of the capital of the partnership is owned
by foreign nationals, or
(b)
the majority of the partners are foreign nationals, and
(iii) in the case of companies incorporated
in Pakistan, if
(a) 50% of the shares or
more are subscribed by foreign nationals, or
(b) 50% of the Directors
on the Board of Directors or more, are foreign nationals. In the
case of equal share-holding, a company is deemed to be a Pakistani
controlled company, if its Chief Executive is a Pakistan National.
3. 3. General
permission for lending to Foreign Controlled Companies for working
capital.
Authorised Dealers are authorised to grant rupee loans
and credits to foreign controlled companies for meeting their
working capital requirements subject to observance of Prudential
Regulations prescribed under the Banking Companies Ordinance.
4.
Local Borrowings for Capital Expenditure.
Foreign Controlled Companies are normally required to meet their
requirements of capital expenditure out of their Rupee resources
or from loans raised abroad with the permission of the Federal
Government/State Bank. In special circumstances such companies
are allowed to raise Rupee resources through medium and long term
local borrowings. As an exception, foreign controlled companies
engaged in manufacturing are permitted to meet their requirements
of capital expenditure by taking loans from banks, Development
Financial Institutions and other financial institutions or by
issuing Participation Term Certificates etc.
5.
Borrowings by Individual Foreign Nationals.
Authorised
Dealers have general permission to grant Rupee loans/overdrafts
to foreign nationals upto the extent of their two months salary.
Request for advances in excess of this should be referred to the
State Bank.
6.
Loans and Overdrafts to Non-Residents including Loans for
Purchase of Residential Plots/Houses/Flats by Overseas Pakistanis.
(i)
Authorised Dealers may grant purely short term Rupee loans
or overdrafts to their overseas branches and correspondents, in
the normal course of their business, without reference to the
State Bank, provided such loans or overdrafts are created as a
result of negotiations under Rupee Letters of Credit, established
by the overseas banks to finance exports from Pakistan, and are
liquidated within a period not exceeding two weeks.
(ii)
Authorised Dealers may grant Rupee loans to those Pakistan
nationals resident outside Pakistan, who are maintaining Foreign
Currency Accounts with them, against the security of the balances
held in such accounts.
(iii)
Authorised Dealers/Development Financial Institutions/Housing
Finance Institutions may grant rupee loans to those Pakistan nationals
who are working outside Pakistan, for purchase of residential
flats/plots/houses in Pakistan up to 90% of the cost/price of
the flat/plot/house subject to the condition that the loan will
be liquidated by the borrowers through remittances from abroad
in foreign exchange through normal banking channel or by debit
to their Foreign Currency Accounts. The initial down payment of
the purchase price of the flat/plot/house up to 10% of the total
price can be financed by the purchaser/borrower from his savings
in Pak rupees.
The
above permission is, however, subject to the following terms and
conditions:-
a.
The rupee loan shall be extended to those non-resident
Pakistanis only who are working abroad and do not own immovable
property outside Pakistan, for the purpose of purchasing a residential
plot or house/flat and not for any commercial purposes.
b.
Loans will be extended by the banks/DFIs/Housing Finance
Institutions subject to observation of the normal rules and Prudential
Regulations.
c. Sale proceeds of the residential plot/flat/house
on dis-investment shall not be eligible for repatriation in foreign
exchange or for credit to a Foreign Currency Account/Convertible
Rupee Account of the purchaser/owner.
7. Loans and Overdrafts against Guarantees
of Non-Residents or against Collateral held outside Pakistan.
Authorised
Dealers are given general permission under the Foreign Exchange
Regulation Act, 1947 to grant rupee loans to their clients (including
foreign controlled companies) against guarantees of non-residents/guarantees
received from banks functioning abroad, subject to compliance
with the credit restrictions imposed by the Banking Supervision
Department, State Bank of Pakistan.
Part
B- Foreign Private Loans
8. Private Foreign Currency Loans.
In
terms of section 4(1) of the Foreign Exchange Regulation Act,
borrowing from abroad without the previous general or special
permission of the State Bank is prohibited. The State Bank has
given general permission to Private Sector entrepreneurs to obtain
foreign currency loans from banks/financial institutions abroad,
parent companies of the multinationals and as suppliers credit
including credits under PAYE Scheme, not involving government
guarantee, for financing foreign currency cost of the projects
covered by the government’s Industrial/Investment Policy
and the instructions issued by SBP from time to time. The loans
should be contracted on the best possible terms. The repayment
period of such loans/credits, however, should not be less than
five years.
9. Pay-As-You-Earn (PAYE) Scheme.
Since
February, 1973 the Government has instituted a scheme of Suppliers
Credit called PAY-AS-YOU-EARN (PAYE) Scheme under which entrepreneurs
in the private sector can negotiate foreign currency loans for
import of plant and equipment for export oriented industries either
for establishment of new industrial units or for balancing, modernization,
replacement and expansion of the existing export oriented units.
The industries covered by the Scheme are:
(i)
Export oriented industries
which include:
(a)
Industries such as fish processing and modern rice milling, the
bulk of whose production is exported, and
(b)
Industrial units set up for export market within industrial sub-sectors
which serve both the local market and the export market, such
as textiles, carpets, leather, fruits and vegetables. Units, to
qualify under this category, must give a guarantee to export 50%
or more of their total output. In special cases such as engineering
goods, the limit may be reduced to 25% in the first three years
and 33% thereafter.
(ii)
Sub-contracting arrangements for exports
under which manufacturing units are established in response to
specific orders, which are received from the foreign non-resident
firms by local manufacturers as a sub-contractor, and
(iii)
Service
industry like hotels etc.
10.
Features of the Scheme.
The
main features of the PAYE Scheme, 1973 are as under:
(a)
Advance payment upto 15% of the C & F value of the
machinery may be allowed provided the sponsors give an undertaking
that in case machinery is not imported by the stipulated date,
they will repatriate the foreign exchange to Pakistan or pay to
the Government penalty amounting to 27% of the advance payment
or any portion thereof which remains unrepatriated plus interest
on it at the rate of 9% from the date of the remittance.
(b)
Projects established under the PAYE Scheme will be allowed
a maximum of 50% of the F.O.B. value of their foreign exchange
earnings in respect of goods manufactured and exported by the
concerned units established or expanded under the Scheme for meeting
their debt liability and other foreign exchange payments on account
of royalty, technical fee and incidental charges.
(c)
If in any financial year, the debt servicing liability
cannot be met out of the prescribed percentage of earnings in
that year, the sponsors will have to pay to the Government penalty
to the extent of 27% of the Rupee equivalent of the short-fall.
(d)
If a project has been established against a loan in convertible
currency, it will be required to meet its obligations in convertible
currency. Where a project has been set up on the basis of a loan
repayable in commodities, export of commodities to the lending
country will count towards repayment of the loan. Export against
convertible currency made by the units concerned from the new
capacity created under the Scheme to countries other than the
lending country, will also count towards repayment of the loan.
11. Procedure for import of machinery and registration of repayment
schedule.
(i)
Foreign currency private
loan agreements and suppliers credit agreements including credit
agreements under PAYE Scheme as permitted under para
8 ibid
will be submitted to the State Bank for registration through the
Authorised Dealer designated for the purpose within 30 days of
the date of Agreement.
(ii)
The Authorised Dealer will furnish
the original loan/credit agreement alongwith five copies, a list
of the company's Directors, project report showing the details
of the project including its cost (broken into local cost and
foreign exchange cost), location of the project and copy of Certificate
of Incorporation of the company to the Investment Division, Exchange
Policy Department, State Bank of Pakistan, Central Directorate,
Karachi. In the case of Buyer's Credit, three copies of the purchase
contract will also be furnished.
(iii)
Approval of the Government of Pakistan will also be furnished
where the loan/credit is provided at concessional rates by the
banks/financial institutions under the instructions or policy
of the foreign Governments.
(iv)
A copy of the loan/credit Agreement registered
by the State Bank will be returned to the Authorised Dealer.
(v)
The loan amount from foreign banks/financial
institutions can be deposited in a foreign currency account to
be opened under the general permission given vide paragraph 8
of Chapter VI.
(vi)
After registration of the agreement with
the State Bank, remittance of down payment may be made by the
Authorised Dealers to the extent provided in the agreement. Such
remittances shall be reported to the concerned area office of
Exchange Policy Department, State Bank of Pakistan, on Form
'I' which, for statistical purpose is to be coded by
them with appropriate commodity code on Schedule
E-2 with Department code as 750.
(vii)
Alternatively, the sponsors may arrange a loan for financing
down-payment to the suppliers of plant and machinery. Such a loan
will be subject to registration in accordance with the above procedure.
(viii)
In order
to establish the value of plant and machinery imported under the
loan/Supplier's Credit, including credits obtained under PAYE
Scheme, the sponsors will, immediately on receipt of the consignment,
submit to the area office of Exchange Policy Department through
the designated Authorised Dealer, the relative import documents
viz. Exchange Control copy of Bill of Entry, original invoice
and a copy of letter of credit.
(ix)
After the liability to the foreign lender/supplier
of plant and machinery as mentioned in sub-paragraph
(viii) has been established, the repayment schedule
as per specimen given at Appendix
V- 83 should be submitted for registration to the Investment
Division, Exchange Policy Department, at Karachi in sextuplicate
through the Authorised Dealer which has
submitted the loan agreement.
(i) After the repayment
schedule has been registered by the State Bank, the remittances
on account of principal and interest will be allowed by the Authorised
Dealer subject to compliance with the requirements set out herein
and after deduction of tax if payable. In case of exemption from
income tax, a copy of the exemption certificate should be attached
with the relative 'M'
form. The application for remittance towards repayment
of cost of plant and machinery and interest accrued thereon (instalment)
will be submitted on the prescribed form (Appendix V- 84) to the
Authorised Dealer whose name appears on the related repayment
schedule. The application should be signed by the applicant and
certified by the bankers and must be accompanied by Export Realisation
Certificate in the prescribed form (Appendix V- 85). The application
will be accompanied by two forms
'M' i.e. one for the amount of principal and the other
for the amount of interest. Remittances on account of repayment
of principal and payment of interest should be coded by the Authorised
Dealers as 1830 and 1220 respectively, on Schedule
E-4 with Departmental Code as 775 in each case. Where
the amount of 50% of the FOB value of export earnings of an industrial
unit or enterprise in any financial year, upto the date on which
the instalment has fallen due, is not sufficient to cover the
debt liability and other liabilities as laid down in Clause 7
of the Scheme, the remittance may be allowed by the Authorised
Dealer concerned on submission of an undertaking by the applicant
to the effect that he will submit evidence of having repatriated
sufficient export earnings during the financial year concerned,
to cover the remittance and that in case there is any shortfall,
a penalty amounting to 27% of Rupee equivalent of the excess remittance
plus interest thereon @ 9% per annum from the date of remittance,
shall be paid to the State Bank on account of the Federal Government
by the 8th July of the next financial year. This undertaking should
be countersigned by the Authorised Dealer concerned, who should
assume responsibility for the payment of the penalty and interest
and forward the undertaking to the State Bank alongwith the form
'M' covering the remittance.
(ii)
In
respect of remittances made under the PAYE Scheme, the Authorised
Dealers will send to the State Bank every month statements in
triplicate in the prescribed forms (Appendices V-
86 &
V-
87).
(iii)
In
case any discrepancy is found in the information contained in
an application (V-
84 ) or export
realisation certificate (V-
85) on the basis of which an Authorised Dealer has
allowed remittance of principal and interest, the applicant will
be required to arrange for repatriation to Pakistan of the amount,
if any, remitted in excess or alternatively on demand by the State
Bank, pay to it on account of the Federal Government penalty amounting
to 27% of Rupee equivalent of the excess remittance plus interest
thereon @ 9% per annum from the date of remittance. The Authorised
Dealer who has allowed the remittance shall be responsible for
compliance with the above requirements including payment of penalty
and interest.
13.
Payment of Penalty-Head of Account.
The
penalty of 27% recoverable from the applicants under the above
Scheme should be deposited with the State Bank by the concerned
project or its bankers on challans filled in quadruplicate for
credit to Federal Government's account with the State Bank under
the head "1000 Non-Tax Receipts1300 Miscellaneous Receipts-1390
others-Fees, Fines and Forfeitures".
14.
Repayments under loans/credits other than PAYE Loans.
(i)
After the repayment schedule has been registered by the
State Bank, the remittance on account of principal, interest and
other charges will be allowed by the Authorised Dealers strictly
in accordance with the approved schedule. Remittance of interest
will be effected after deduction of tax, if payable. In case of
exemption from income tax, a copy of the exemption certificate
should be attached with the relative 'M'
form. Remittances on account of repayment of principal
and interest shall be reported separately on forms
'M' and coded as 1952 and 1212 respectively with Department
code 121. Such 'M'
forms should be prominently marked at the top as under:
"Remittance
of Principal/Interest under Loan/Supplier's Credit vide Repayment
Schedule Registered with the State Bank under Registration No
…………………………"
(ii)
In some cases of Loans/Supplier's Credits, interest is
payable at a varying rate linked with LIBOR. In such cases, it
would not be possible for the borrowers to show in advance the
exact amount of interest payable with future instalments. It would
be in order for the Authorised Dealers in such cases to remit
the actual amount of interest calculated on the basis of the formula
appearing in the approved contract. They should, however, show
the number of days, the applicable rate and the principal amount
on which interest has been paid in the 'M'
form.
15.
Repatriable Foreign Currency Loans by Foreign Controlled
Companies.
(i)
Foreign controlled companies are permitted to contract
foreign currency loans from banks/financial institutions abroad
or from their Head Offices/or from
other overseas branches/associates for meeting their working
capital requirements. The repayment period should not exceed
twelve months and the rate of interest should not exceed
1% over LIBOR. Such loans can however be rolled over for further
periods not exceeding twelve months each.
(ii)
Foreign controlled companies, as defined in paragraph 2
ibid, desirous of availing this facility may approach their bankers
(Authorised Dealers), who will satisfy themselves that the applicant
is a foreign controlled company. Once such a confirmation is obtained,
the concerned company may contract the loan and repatriate the
amount for credit to their Rupee account with the Authorised Dealer.
(iii)
The concerned Authorised Dealer will issue a proceeds realisation
certificate, and record the particulars of the loan. On maturity,
the Authorised Dealer having received the inward remittance, will
allow payment of interest minus taxes and repayment of principal.
While reporting remittance of interest, a certificate confirming
the applicable LIBOR and a certificate confirming payment of income
tax will be attached with the Form ‘M’. If tax is
not payable, a copy of the exemption certificate issued by the
Revenue authorities will be submitted. While reporting repayment
of the principal, a copy of the proceeds realisation certificate
will be attached with the Form ‘M’.
(iv)
Branches in Pakistan of foreign companies are not allowed
to pay interest on such loans.
(v)
Foreign contractors are not allowed to pay interest on
such loans, and they can repay the loans only after they have
completed the contracted work/project and have submitted clearance
certificate from the tax authorities, which should be attached
with the Form ‘M’.
16.
Foreign Currency Loans for Financing Exports.
(i) Those exporters who
have valid firm commitments with the overseas buyers for export
of goods from Pakistan, may obtain short term loans in foreign
currencies form abroad or through an Authorised Dealer, to the
extent of the value of such firm commitment, to enable them to
finance the export of goods from Pakistan. It is permissible to
obtain one consolidated loan for all LCs/contracts received in
a month or covering shipment required to be made during a month.
The Authorised Dealers may issue guarantees to the lenders subject
to compliance with Prudential Regulations in force.
(ii) The Authorised Dealers and
borrowers will be free to negotiate the interest rates on such
loans. The maximum tenure of such loans will be the period generally
fixed for repatriation of export proceeds plus a further period
of sixty days. The exchange risk will be borne by the borrower.
(iii)
The foreign currency amount of loan will be required to
be repatriated to Pakistan and encashed with an Authorised Dealer.
Such inward remittances will be reported on form ‘R’
Schedule ‘J’ with Code No. 9711.
(iv)
In case an exporter utilizes this facility, he will not
be eligible to obtain export finance in local currency from a
bank in Pakistan and the facility under the ‘Foreign Currency
Export Finance Scheme’ for the same export commitment.
(v)
The foreign currency loan will be required to be repaid,
along with interest, out of the related export proceeds. Where
an exporter is unable to export goods against a firm contract/letter
of credit against which a foreign currency loan was obtained,
he may repay the loan from the proceeds of export of the same
or other commodity to the same or a different buyer in any country
against another firm contract/letter of credit provided no foreign
currency loan has been obtained against the substituted contract/letter
of credit. The exporter will instruct the Authorised Dealer, through
which the loan was received, and which is negotiating/handling
the export documents, to arrange to repay the foreign currency
loan and interest accrued thereon, less tax if payable, to the
lending institution out of the proceeds of the bill. It is not
necessary to repatriate the proceeds of the export bills to Pakistan
first and then to arrange remittance in repayment of the debt.
The amounts of the export bills realised abroad can straight-away
be used for repayment of the amount of the relative debt and net
interest. The concerned Authorised Dealer will however, report
the realisation of foreign exchange proceeds of the exports as
a ‘purchase’ on Schedule A-1 and the amount of loan
and interest paid
as ‘sale’. At the time of reporting sale, the Authorised
Dealer will attach with the relative form ‘M’:
(a)
Proceeds Realisation Certificate.
(b)
Income Tax Officer’s/Auditor’s certificate
indicating the amount of tax due on the interest accrued on the
foreign currency loan.
It
will be the responsibility of the Authorised Dealer to ensure
while arranging payment/remittance of interest that the payment
is made after deduction of tax leviable thereon.
(vi)
In case the loan matures after the export proceeds have
been realised, the export proceeds to the extent required for
repayment of the loan and net interest on the due date, may be
retained in a foreign currency account temporarily opened for
this purpose, repayment made on the due date and the account closed.
(vii)
Notwithstanding the utilization of export proceeds for
repayment of the loan, the Authorised Dealers will continue to
be liable to deduct income tax as required by the Tax laws.
(viii)
In case the exporter fails to fulfil the export obligations
or there is a delay in realisation of export proceeds, repayment
of loan and interest accruing thereon less taxes, will be made
by him from his own resources or from a foreign currency account.
(ix)
In the case of exports to ACU member countries where export
proceeds are not realised in convertible currencies, Authorised
Dealers may remit the amounts of principal/interest from their
Nostro balances at the current exchange rate subject to compliance
of the drill laid down in preceding sub-para (v).
17.
Foreign Currency Loans for Working Capital and other purposes.
(i)
Pakistani firms and companies functioning in Pakistan excluding
banks may obtain foreign private loans on non-repatriable or repatriable
basis for their working capital subject to the following terms
and conditions:
(A)
NON-REPATRIABLE BASIS:
The
loans are contracted on non-repatriable basis on the clear understanding
that such loans would be treated as rupee loans to the extent
of rupees generated out of the inward remittance, neither the
principal nor interest/profit would be remittable abroad at any
time and repayment of the loan and payment of interest/profit
would be made in Pakistan.
(B)
REPATRIABLE BASIS:
(a)
The loan is interest free and for a period not less than one year.
(b)
No bank guarantee for securing such loans would be provided from
Pakistan.
(c)
No forward cover shall be provided.
(d)
The Government of Pakistan will not provide the facility of absorption
of exchange risk in such cases.
Agreement
for foreign private loans on repatriable basis should be submitted
to the State Bank for registration. After the State Bank has registered
the agreement and the loan amount has been remitted to Pakistan,
the repayment schedule (Appendix V- 83 ) should be submitted to
the State Bank for registration alongwith proceeds realisation
certificate. After the repayment schedule has been registered,
the Authorised Dealers would be free to remit the instalments
of principal on the due dates quoting reference of the repayment
schedule, in accordance with the procedure laid down in paragraph 14 ibid. No pre-payments would be permissible.
(ii)
Individuals/firms/companies
resident in Pakistan, including foreign controlled companies and
branches of foreign companies operating in Pakistan, but excluding
banks are also permitted to obtain loans from abroad in foreign
currencies on repatriable basis for any purpose
on the following terms and conditions: -
(a)
There shall be no ceiling on the amount of loan. The repayment
period should not, however, be less than five years, and the repayments
should be made in equal instalments.
(b)
Interest will be payable in arrears on half yearly/yearly
basis at a rate not exceeding the relevant LIBOR + 1.5% and will
be subject to deduction of Pakistan taxes as may be leviable under
the law. The borrowers shall be free to pay interest according
to the above formula at a fixed or floating rate.
(c)
Exchange rate fluctuation risk will be borne by the borrowers
and no forward cover would be provided by
the Authorised Dealers in Pakistan.
(d)
No bank guarantee for securing such loans would be provided
from Pakistan.
(e)
The borrower will get the agreement
with foreign lenders registered with an Authorised Dealer
who will handle all transactions thereunder and intimate the details
after completion of the disbursements, to the Investment Division
at Karachi in the prescribed proforma (Appendix V- 88) in triplicate
alongwith Proceeds Realisation Certificate(s) in original showing
encashment of the loan amount into Pak Rupees. Thereafter the
Authorised Dealer would be free to remit the instalment(s) of
principal and interest, as the case may be, on due dates strictly
in accordance with the terms of repayment intimated to the State
Bank. Prepayments would not be permissible. Remittance of interest
will be effected after deduction of tax, if leviable thereon.
(f)
(A) The inward
remittances on account of loan disbursement from foreign lenders
may be reported under Code-9821.
(B)
Likewise the outward remittance on account of repayment
of principal shall be reported on Form ‘M’ and Coded
as 1821.
(C)
Remittance of interest will be reported under Code- 1224.
18.
Short term Borrowings in Foreign Currency by Authorised
Dealers.
Authorised
Dealers may, if it becomes necessary in the normal course of their
business but not for the purpose of carrying speculative exchange
position etc., obtain short-term loans and overdrafts from overseas
branches and correspondents for periods not exceeding seven days
at a time. If such loans or overdrafts are required to be secured
by collateral to be lodged in Pakistan or else where, full details
of the proposed arrangements should be furnished to the State
Bank for prior approval.
Interest
on short-term loans and overdrafts taken under this para may be
remitted by Authorised Dealers without the prior approval of the
State Bank.
19.
Long Term Loans by Authorised Dealers.
It
is not permissible for Authorised Dealers to obtain long-term
loans in foreign currencies without the prior approval of the
State Bank. Application for this purpose should be made to the
State Bank, giving the terms of the proposed loan and the reasons
why it is considered necessary to contract such a loan.
20.
Loans and Advances by Authorised Dealers in Foreign Currency.
Authorised
Dealers will not grant any loans or overdrafts in foreign currencies,
whether secured or unsecured, without the prior approval of the
State Bank. Applications for this purpose should be made by letter,
giving full details of the purpose for which such loans or overdrafts
are required as also the particulars of the guarantee or collateral,
if any, and the manner in which the loans or overdrafts are expected
to be liquidated.
Part
C- Guarantees etc.
21. Guarantees on
behalf of Foreign Controlled companies.
For
the purposes of Section 18(2) of the Act, guarantees that are
issued in lieu of earnest money, security or other cash deposits
are treated as extension of credit to the extent these are not
backed by 100% cash deposit. Authorised Dealers may issue such
guarantees on behalf of foreign controlled companies only by adjustment
of the amount from their borrowing entitlement as per Prudential
Regulations. This, however, would not be necessary where guarantee
required to be issued are not in lieu of cash deposit but are
either in the nature of performance bond etc., or are required
to be given alongwith the tender documents in lieu of earnest
money deposit. In the latter case, the validity of the guarantee
would be restricted to the period upto which decision about acceptance
or rejection of the relative tender is taken. The State Bank's
prior approval will become necessary if the guarantee is to remain
valid even after the decision on the tender has been taken.
(i) Except in cases covered
by paragraphs 24 and 26 ibid, prior approval of the State Bank
is required for giving any guarantee or undertaking or opening
of a letter of credit, the implementation of which may involve
payment to a non-resident either in foreign currency or Rupees.
Applications seeking permission for giving such guarantee or undertaking
should be made by letter giving full particulars of the guarantee
or under-taking viz., the amount, the period and the purpose of
the guarantee and the terms of payment in the event of the guarantee
being implemented. These restrictions also apply to renewal of
such guarantees, undertakings, letters of credit etc. While forwarding
applications for renewal to the State Bank, Authorised Dealers
should state the extent upto which the facilities covered by the
guarantees were utilised during the previous twelve months or
during the validity of the guarantees etc., if the period involved
is less than 12 months.
(ii)
Authorised Dealers may, however, issue guarantees in favour
of foreign suppliers/lenders to cover repayment of loan and payment
of interest under Foreign Private Loan/Suppliers Credit including
credits under PAYE Scheme in accordance with the terms and conditions
of the agreement as registered by State Bank, under intimation
to Investment Division at Karachi.
23. Guarantees on
behalf of Non-Residents in favour of Residents of Pakistan.
Prior
approval of the State Bank is ruired for giving guarantees or
undertakings in favour of residents in Pakistan either on behalf
of non-residents or against overseas guarantees or collaterals
lodged outside Pakistan. This restriction does not, however, apply
to cases covered under paras 27 and 28 or where the guarantee
is being extended by the Authorised Dealer on the basis of a back-to-back
guarantee from its overseas branch or correspondent. Applications
for this purpose should be made by letter giving full particulars
including the amount, the period and the purpose of the guarantee
and the manner in which the Authorised Dealer will be reimbursed
in the event of the guarantee being implemented. Renewal of such
guarantees also requires the prior permission of the State Bank.
While forwarding applications, Authorised Dealers should state
the extent to which the facilities covered by the guarantee or
undertaking etc., have been utilized during the previous 12 months
or such shorter period for which the facilities have been available.
24.
Performance/Bid Bond Guarantees.
Authorised
Dealers, National Insurance Company Limited, Pakistan Insurance
Corporation and those Insurance Companies whose exposure limits
have been fixed by the Controller of Insurance for the above purpose
(particulars of Insurance Companies could be obtained from the
Controller of Insurance) may issue Performance or Bid Bond Guarantees
on behalf of exporters, members of recognized Consultancy/Construction
Associations and Companies approved by Pakistan Engineering Council
(PEC) in Pakistan subject to the following conditions:
a.
Tenders specifically call for furnishing of such guarantees.
b.
The beneficiary abroad is a foreign Government or a Government
sponsored Organization or private company or a firm.
c.
The tenderer is a bonafide exporter or a manufacturer of
the commodity which is specified in the tender and there is no
restriction on its export from Pakistan.
d.
In case of Consultancy/Construction firms and Engineering
firms recognized by Pakistan Engineering Council, the organization
issuing the performance or bid bond must satisfy itself that the
tenderer is a bonafide Consultancy/Engineering firm, having the
requisite financial and technical resources and there are reasonable
prospects of their being able to successfully execute the contract.
Companies with poor track record will not be eligible.
25.
Remittances under Guarantees or Performance Bonds and their
Reporting to the State Bank.
Authorised
Dealers may make remittances against the Performance Guarantees
or bonds issued by them or the Pakistan Insurance Corporation
or National Insurance Company
Limited or those Insurance Companies whose exposure limits have
been fixed by the Controller of Insurance in terms of Para 24
ibid, if remittances become necessary for the implementation of
such Performance Guarantees or bonds. In these cases, Authorised
Dealers should minutely scrutinize the terms of the Performance
Guarantees or bonds and satisfy themselves that the amount has
become payable to the beneficiaries due to the default of the
party in Pakistan. While reporting remittances made against such
Performance Guarantees/Bonds to the Exchange Policy Department
in their monthly foreign exchange returns, the Authorised Dealers
will bunch Forms 'M' with the documents given below alongwith
the covering statement in duplicate as per Form (Appendix V- 89):
i) Photocopy of the Guarantee or Performance
Bond.
ii) Photocopy of the claim received by the
foreign bank from the concerned Government or the Government institutions
or a private company or a firm demanding such payment.
iii) Copies of correspondence, if any, exchanged
between the foreign bank and foreign government or Government
Institution or a private company or a firm.
iv) Copies of correspondence exchanged by
the firm in Pakistan on whose behalf Guarantee/Bond was issued
with the concerned foreign Government or Government Institution
or a private company or a firm about invoking of the Guarantee/Bond
by the latter.
26. Opening of Letters of Credit and Advising of Negotiations under
Export Letters of Credit.
Restrictions
imposed under para 22 of this chapter shall not apply to the establishment
of letters of credit or similar undertakings by the Authorised
Dealers to finance imports into Pakistan in accordance with the
provisions of Chapter-XIII. Similarly restrictions imposed under
para 23 shall not apply to advising of export letters of credit
established by non-resident banks nor to negotiation of documents
thereunder.
27.
Guarantees which may be given without Prior Approval.
The
restrictions in paragraphs 22 and 23 do not apply to guarantees
given by Authorised Dealers in favour of non-residents on behalf
of their customers in the ordinary course of their business in
respect of missing documents, authentication of signatures, release
of goods on Trust Receipts and defects in documents negotiated
by them under letters of credit etc.
28. Guarantees and Collaterals in favour of Overseas Bank Branches
and Correspondents.
Authorised
Dealers should not, without the prior approval of the State Bank,
furnish guarantees to the overseas bank branches or correspondents
or hold collaterals on their behalf in respect of any credit facilities
or guarantees the latter may give or for any other purpose. All
applications for this purpose should be made to the State Bank
by letter giving full details of the guarantees or collaterals,
as the case may be, and of the transaction in cover of which guarantee
is proposed to be given or collaterals deposited.
29.
Renewal of Loans and overdrafts.
In
cases where the grant of any loans or overdrafts or issue of guarantees
requires the prior approval of the State Bank, the renewal of
such loans, overdrafts or guarantees shall also require the prior
approval of the State Bank. |