931211

P.O. Box No 4456
KARACHI

NBFIs Circular No. 19
11^th december, 1993

All NBFIs
Dear Sirs,

The under-noted regulation is issued with immediate effect:

MINIMUM CONDITIONS FOR GRANT OF FINANCE FACILITIES

Each NBFI is mandated to institute such systems or procedures or take such steps as it deems fit to ensure that defaulters are not accommodated. Every NBFI is therefore required to obtain information about the total outstanding liabilities to banks and financial institutions (from Credit Information Bureau of the State bank) of any applicant seeking financial accommodation involving a sum of Rs. 0.5 million or more before approving any facilities. In case of those who are reportedly in default no fresh accommodation whether fund based or otherwise would be allowed unless rescheduling or restructuring of outstanding liabilities is done to the satisfaction of NBFIs by the respective borrower. If in exceptional circumstances, an NBFIs decides to provide such financing to any person, firm or company who is reportedly a defaulter* as per information supplied by the Credit Information Bureau or any other bank/NBFI, it shall place on record circumstances or reasons necessitating grant of any accommodation in such cases. The State Bank may as necessary undertake special inspection of such exception.

EXPLANATION:

1. * A person, whether natural or juridical, shall be deemed to be a defaulter for the purposes of Regulations, if he (or his dependent family members or concerns owned or controlled by him or concerns in which he or his dependent "family members are major shareholders) has failed to pay off or liquidate any fiduciary obligation towards any banking company or a NBFI or a legitimate financial institution in Pakistan as was agreed upon or required under the terms and conditions of availment of the financing facility or to do or perform an act agreed to or undertaken in writing to be done or performed by him and such failure has continued for a period of 365 days from the date on which he was required to make the payment or to do or perform the act.
2. ** Family members mean family members as defined in the Banking Companies Ordinance, 1962.
3. *** Major shareholding in the context of explanation (i) above, would mean 105 or more holding in the shares of a particular enterprise be a person or his dependent family members or concerns owned or controlled by him or his dependent family member.

2. Any NBFI whose aggregate overdues position (including defaulters against Contingent Liabilities) hereafter would register persistent deterioration shall submit quarterly review of its infected portfolio to State bank which should spell out the reasons for such deterioration, and remedial measures to address and reverse the trend. Failure to reverse the trend would lead to special inspection by the State bank with a view to taking appropriate action.

3. The NBFIs would scrupulously scrutinize professional management and staff placing and ensure that officers responsible for allowing imprudent facilities are dealt with seriously.

4. NBFIs will set out clear procedures and regulations for processing of facilities. The NBFIs would ensure strict adherence thereto. A copy of these regulations and procedures would be supplied to the State bank of Pakistan.

5. Any NBFIs of financial institution, or its Chief Executive officer (by whatever name called) or Director or any other officer who is guilty of violating or disregarding the provisions of this Regulation shall render itself/himself the provisions of this Regulation shall render itself/himself liable for penalties and without prejudice to act action as to penalties to other actions provided for under the banking Companies Ordinance, 1962 as amended from time to time.

Yours faithfully,
(I.A. FAROOQ)
Director