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921111
STATE BANK OF PAKISTAN NBFIs REGULATION & SUPERVISION DEPARTMENT
CENTRAL DIRECTORATE
NBFIs Circular No. 9
11th November, 1992
Chief Executives of DFIs, Investment Banks, Leasing Companies, Modarabas, Housing Finance Companies & Discount Houses
Please refer to the NBFIs Circular No. 1, 2 & 5 dated 5th December 1991, 23rd January and 13th may 1992 respectively. Rules of business of Non bank Financial Institutions have been reviewed and for the existing Rules 7, 8, Sub-section (ii) of Rule 10 and Sub-section (iv) of Rule 13, follow ing be substituted with immediate effect namely:-
Linkage between a Borrower’s Equity and Total Borrowing from NBFIs.______________________
7(1) While granting any facilities, NBFIs shall ensure that the total facilities availed any borrower from Non banks Financial Institutions/Banks does not exceed 10 times of the capital and reserves (free of losses) of the borrower as a matter of rule, obtain copy of accounts relating to the business of each on its borrower for analysis and record in the following manner:-
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a) Where the NBFIs exposure does not exceed Rs. 2 million. |
Accounts duly signed by the borrower. |
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b) Where the exposure exceed Rs. 2 million but does not exceed Rs. 10 million. |
Accounts duly signed by the borrower and countersigned by the Internal Auditor of the NBFIs or a Chartered Accountant. |
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c) Where the exposure exceeds Rs. 10 million. |
Accounts duly signed by the practicing Chartered Accountant. |
d) The regulation shall not apply to loans not exceeding Rs. 50,000/- per borrower.
e) Compliance with this regulation shall be judged on the basis of written statement filed by borrower.
(2)
a) Non Banks Financial Institutions shall strictly observe the regulation when sanctioning fresh/additional facilities. Following relaxation is hereby granted upto 30-6-1996 for renewing existing facilities:-
Total facilities availed by a borrower from NBFIs may exceed 10 times of the capital and reserves (free of losses) of the borrower provided the borrower injects additional equity during each year (92-93, 93-94, 94-95 & 95-96) an amount equal to žth of the difference between the equity prescribed y this Regulation and the existing equity.
EXAMPLE
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i) Limit proposed to be renewed |
100 |
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ii) Prescribed Equity (i) / 10 |
10 |
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iii) Actual Equity (say) |
6 |
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iv) Difference between the prescribed equity and the existing equity (ii) & (iii) |
4 |
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v) Additional equity required to be injected in 92-93 (iv) / 4 |
1 |
b) Export finance and finance provided to ginning and rice husking factories and finance provided on the basis of rice on foreign currency deposits shall be excluded from the borrowings when determining linkage between equity and borrowing for the purpose of this Regulation. The borrowers availing this relaxation shall plough back 20% of the net profit each year until such time that they are able to borrow without this relaxation.
3) For the purpose of this Regulation sub-ordinated loans shall be counted as equity.
Maintencane of Debt-equity Ratio:
8) Non Banks Financial Institutions shall ensure that:-
a) Current asset to current liability ratio of the borrower does not fall below the minimum indicated hereunder:-
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i) upto 31-12-1992 |
0.7: 1 |
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ii) From 1-1-93 to 30-6-93 |
0.8: 1 |
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iii) From 1-7-93 to 31-12-93 |
0.9:1 |
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iv) From 1-1-94 |
1:1 |
(i) Current maturities of long term debt not yet due for payment may be excluded from the current liabilities, for the purpose of calculating these ratios.
(ii) Lease rentals receivable within the next twelve months as disclosed in the notes to the annual audited accounts shall be treated as current assets for the purpose of calculating these ratios.
b) Fresh/additional facilities in the form of long term debts shall be provided on the basis of a debt equity ration not exceeding 60:40. The position of existing facilities may be regularised by 30-6-1996. The borrowers shall inject during each year (92-93, 93-94, 94-95 & 95-96) and amount equal to 1/4th of the difference between the required equity and the existing equity. Provided that where a different debt equity ratio has been laid down in Government Schemes, the ratio laid down by Government shall apply.
Margin Against facilities:
10-ii) Financing Facilities Against Shares:
a) No NBFI shall provide unsecured facilities to finance subscription towards floatations of share capital of public limited companies.
b) No NBFI shall allow facilites against its own shares or shares of its associated companies or shares of companies not listed on the Stock Exchange.
2) Facilities against the shares of listed companies shall be subject to the following minimum margin:-
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a) Where the market value does not exceed the preceding 12 months average market value. |
20% |
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b) Where market value exceeds the preceding 12 months average market value but does not exceed twice the preceding 12 months’ average market value. |
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c) Where the market value exceeds twice the preceding 12 months’ average market value. |
50% |
3) The Regulation will come into force with immediate effect. The prescribed margin requirement may be completed before the close of the financial year ending 31-13-1992.
Restrictions on Certain Types of Transactions:
13-iv) Non Banks Financial Institutions shall not without the prior approval in writing of the State Bank of Pakistan enter into leasing, renting and sale/purchase of any kind with their directors, officers, employees or persons who either individually or in concert with family members beneficially own 10 percent or more of the equity of the NBFI.
The regulation will come into force with immediate effect.
Other instructions remain unchanged.
Yours faithfully,
(I.A. FAROOQ)
Director
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