920515

NBFIs circular NO:5
15^th May, 1992

Chief Executives of Modaradas/Leasing Companies.

As you are aware, the Government has, through an amendment in the Banking Companies Ordinance, 1962 assigned the responsibility of supervising the business of NBFI the State Bank of Pakistan. The State Banks, accordingly framed rules of Business for NBFIs. These rules will come into force with effect from 1^st July 1992. The rules will govern the business of NBFIs which they are permitted to undertake under the relevant laws, SROs notifications , government consent , charters etc. the rules should not be construed as permission to undertake business which you are not authorized to so. All transactions taking place on or after 1^st July, 1992 does not result in violation of these rules. Business undertaken prior to 1^st July, 1992 shall be regularized within reasonable time. Process of regularization may be taken in hand immediately and completed as early as possible. The State Bank will monitor the progress of regularization through quarterly progress reports.

Maintenance of Liquidity against Certain Liabilities.

Rule 6.
Not less than 15% of the NBFIs liabilities shall be invested in government securities. For this purpose liabilities shall not include NBFIs equity and borrowings from financial institutions, including accruals thereon, lease key money, deferred taxation not payable within 12 months, dividend payable within 2 months and lease rentals.

In the case of modarabas if the religious Board does not permit investment in government securities e.g. federal investment bond (FIBs) they will comply with this regulation by investing in NIT units.

Maintenance of Debt Equity Ratio

Rule 8 :
While granting a credit facility every NBFIs shall ensure that the total long term debt e equity ratio of the borrower does not exceed 30:40 except in case where the Government Schemes provide for a deferent debt-equity ratio in which case the one fixed by the government shall apply.

It should also be ensured that current assets to current liabilities ratio of the borrower is not below the minimum indicated below:-

While calculating current assets for the purpose of this ratio lease recalls receivable within the next 12 months as disclosed in the notes to the annual united accounts shall be treated as current assets.

Facilities to small fntreareneurs:

Rule 11:
At least 5% of the credit facilities shall be to small entrepreneurs. In the case of Housing Finance companies at least 5% facilities shall be in the form of facilities not exceeding RS. 125,000/- per borrower.

Facilities allowed by NBFIs up to Rs. 500,000 shall be exempt from Prudential Regulations .

Please acknowledge receipt.

Yours faithfully,
( I. A. FAROOQ )
Director