Consumer Finance

 Where alterations become imminent because of prepayments, change in benchmark rate or any
other reason, the revised schedule should be provided to the borrower at the earliest
convenience of the bank/DFI but not later than 15 days of the change.
 Banks/DFIs having regular consumer finance portfolio of more than Rs1.0 billion (outstanding
amount) should prepare and present such feasibility report to Board Risk Management
Committee for review and information; and update the same every year thereafter.
 Banks/DFIs, with last four quarters consumer finance outstanding portfolio in excess of Rs.5
billion, are encouraged to perform affordability assessment tests on (reasonably representative)
sample of consumer finance portfolio with variable mark-up/profit rate.
 For the purposes of this regulation, Annualized Percentage Rate means as follows:
Mark-up/Profit paid for the period x 365 x 100
Outstanding Principal Amount No.of Days

 Banks/DFIs shall ensure that the aggregate exposure under all consumer financing facilities at
the end of first year and second year of the start of their consumer financing does not exceed 2
times and 4 times of their equity respectively. For subsequent years, following limits are placed
on the total consumer financing facilities:

PERCENTAGE OF CLASSIFIED CONSUMER MAXIMUM LIMIT

FINANCING TO TOTAL CONSUMER
FINANCING
a) Below 3% 10 times of the equity
b) Below 5% 6 times of the equity
c) Below 10% 4 times of the equity
d) 10% & above 2 times of the equity

 While determining the credit worthiness and repayment capacity of the prospective borrower,
the banks/DFIs shall ensure that the total monthly amortization payments of consumer
financing facilities should not exceed 50% of the net disposable income of the prospective
borrower.
 Banks/DFIs may waive the requirement of 50% Debt Burden in case a Credit Card and Personal
loan/financing limit is properly secured through liquid assets (as defined in prudential
regulations) with minimum 30% margin.
 The banks/DFIs shall maintain a general reserve at least equivalent to the percentages given
below of both secured and un-secured consumer finance portfolio (net of cash collateral, govt.
securities and gold), to protect them from the risks associated with the economic cyclical nature
of this business.

Category of Financing NPL / Gross Loans Rate of General Provision

Unsecured Portfolio Ratio ≤ 5% 4%
5% < Ratio ≤ 10% 5%
10% < Ratio ≤ 20% 6%
Ratio > 20% 7%
Secured Portfolio Ratio ≤ 5% 1%
5% < Ratio ≤ 10% 1.5%
10% < Ratio ≤ 20% 2%
Ratio > 20% 2.5%
 Banks/DFIs with outstanding consumer financing portfolio (including housing finance) in
excess of Rs. 5 billion are required to start maintaining the data regarding loan
disbursement, defaults, recoveries there against and costs to recovery (as specified at
Annexure CF-II) for consumer financing portfolio (including housing finance) for a period
covering at least one business cycle.

 For the purpose of rescheduling/ restructuring, banks/DFIs may:

(a) Convert revolving facility into an installment-based financing facility with maximum
repayment tenor of 5 years.
(b) Change the tenure of the financing by maximum two years beyond any regulatory
cap on maximum tenure.
(c) Consumer financing facilities of any borrower should not be rescheduled/
restructured more than once within 12 months and three times during five-year
period.
(d) The loan account has existed for at least 9 months before
rescheduling/restructuring as a performing loan account.
(e) The condition of 50% of Debt Burden Requirement (DBR) mentioned at Regulation
R-3 of Prudential Regulations for Consumer Financing will not be applicable to loan
rescheduled/ restructured. However, new consumer financing facility extended to a
borrower who is availing any rescheduled/ restructured facility shall be subject to
observance of minimum DBR prescribed in the Regulation R-3.
(f) The status of classification of the non-performing financing facility shall not be
changed because of rescheduling/restructuring unless borrower has paid at least
10% of the total rescheduled/restructured amount (i.e. principal and mark-up) or six
installments (comprising principal and mark-up) as per terms & conditions of the
rescheduling/restructuring. However, for internal monitoring purpose, banks/DFIs
may re-set the DPDs counter of the newly created loan to “0” DPD.
(g) Provisions already held against a non-performing financing facility, to be
rescheduled /restructured, will only be reversed if above mentioned condition of
10% recovery or six installments is met
(h) If the borrower defaults (i.e. reaches 90 DPD) again within one year after
declassification, the financing facility shall be classified as under:

Type of Consumer Financing Classification

Unsecured Loss
Secured Same category in which it was prior to
rescheduling/restructuring. Banks/ DFIs,
however, at their discretion may further
downgrade the classification based on
their own internal policies.


Basis Exposure
Clean- regular customer Rs 2,000,000 in aggregate
Clean and unclean- regular customer Rs 5,000,000 in aggregate
Clean- prime customer Rs 5,000,000 in aggregate subject to the
condition that the aggregate clean limit
assigned to one prime customer on account
of personal loan/financing should not exceed
Rs. 2,000,000
However, aggregate exposure on prime customers should not exceed 20% of the total exposure
of the respective portfolio i.e. 80% exposure on account of credit cards and personal loans
(separately) should comply with the limits prescribed for regular customers. The credit cards
secured against liquid securities shall be exempt from the above limits

 The credit card advances shall be classified and provided for in the following manner:

CLASSIFICATION DETERMINANT TREATMENT OF PROVISION TO BE

INCOME MADE*
Loss Where Unrealized Provision of 100%
markup/interest/profit markup/interest/profit of the difference
or principal is overdue to be put in Suspense resulting from the
by 180 days or more Account and not to be outstanding
from the due date. credited to Income balance of
Account except when principal less the
realized in cash. amount of liquid
securities with the
bank/DFI.

 The maximum tenure of the auto finance facility shall not exceed seven years.
 While allowing auto loans/financing, the banks/DFIs shall ensure that the minimum down
payment does not fall below 15% of the value of vehicle. Banks/DFIs shall not finance the
premium charged by the dealers and/or investors over and above the ex-factory tax paid price
of cars/vehicles, fixed by the manufacturers.
 In no case the bank/DFI shall finance the cars older than nine years. However, cars older than
five years and up to nine years can only be financed subject to the condition that complete
repayment of financing is restricted within 12 years of such car age.
 The maximum tenure of the loan financing facility shall not exceed 5 years. However, this period
may be extended to 7 years for loans/advances/financing given for educational purposes,
provided that disbursement of such loans shall directly be made by the bank/DFI to the
educational institution and the borrower shall not be allowed to utilize/withdraw cash directly
from the bank/DFI under this head for any other purpose.
 In case of Running Finance/Revolving Finance, it shall be ensured that at least 15% of the
maximum utilization of the financing facility during the year is cleaned up by the borrower for a
minimum period of one week. In case the clean-up is not made by the borrower, the financing
facility will be appropriately classified.
 The auto loans shall be classified and provided for in the following manner:

CLASSIFICATION DETERMINANT TREATMENT OF PROVISIONS TO BE

INCOME MADE*
1. Substandard Where mark-up/ Unrealized Provision of 25% of
interest/profit or markup/interest/profit the difference
principal is overdue to be kept in resulting from the
by 90 days or more Memorandum Account outstanding
from the due date. and not to be credited balance of principal
to Income Account less the amount of
except when realized in liquid assets.
cash. Unrealized
markup/interest
already taken to income
account to be reversed
and kept in
Memorandum Account
Doubtful Where mark-up/ Same as above Provision of 50% of
interest/profit or the difference
principal is overdue resulting from the
by 180 days or more outstanding
from the due date. balance of principal
less the amount of
liquid assets.
Loss Where mark-up/ Same as above Provision of 100%
interest/profit or of the difference
principal is overdue resulting from the
by one year or more outstanding
from the due date. balance of principal
less the amount of
liquid assets.

 The personal loans shall be classified and provided for in the following manner:

CLASSIFICATION DETERMINANT TREATMENT OF PROVISIONS TO BE

INCOME
1. Substandard Where mark-up/ Unrealized
interest/profit or markup/interest/profit
principal is overdue to be kept in
by 90 days or more Memorandum Account
from the due date. and not to be credited
to Income Account
except when realized in
MADE*
Provision of 25% of
the difference
resulting from the
outstanding
balance of principal
less the amount of
liquid assets.
 cash. Unrealized
markup/interest
already taken to income
account to be reversed
and kept in
Memorandum Account
Loss Where mark-up/ Same as above Provision of 100%
interest/profit or of the difference
principal is overdue resulting from the
by 180 days or more outstanding
from the due date. balance of principal
less the amount of
liquid assets.

Microfinance Banks
 Microfinance Banks (MFBs) shall maintain a minimum paid up capital (free of losses) of not less
than:
i) One billion rupees if licensed to operate at national level.
ii) Five hundred million rupees if licensed to operate in a specified province.
iii) Four hundred million rupees if licensed to operate in a specified region
iv) Three hundred million rupees if licensed to operate in a specified district
 The MFBs shall also maintain Capital Adequacy Ratio (CAR) equivalent to at least 15% of their
risk weighted assets.
 The contingent liabilities of the MFB for the first three years of its operations shall not exceed
three times of its equity and thereafter shall not exceed 5 times of the MFB’s equity.
 The MFB shall maintain a cash reserve equivalent to not less than 5% of its deposits (including
demand deposits and time deposits with tenor of less than 1 year) in a current account opened
with the State Bank or its agent.
 The MFB shall maintain statutory liquidity reserve equivalent to at least 10% of its total demand
liabilities and time liabilities with tenor of less than 1 year, in the form of liquid assets i.e. cash,
gold, unencumbered Treasury Bills, Pakistan Investment Bonds and Government of Pakistan
Sukuk Bonds.
 The MFB shall create a reserve fund to which shall be credited:
i) An amount equal to at least 20% of its annual profits after taxes till such time the reserve
fund equals the paid-up capital of the MFB.
ii) Thereafter, a sum not less than 5% of its annual profit after taxes.
 Maximum Loan Size and Eligibility of borrowers:

Type of Loan Eligibility of borrowers Maximum Size

Housing Loan single borrower with annual Rs. 500,000. However, at
income (net of business least 60% of housing loan
expenses) up to Rs. 600,000 portfolio of a MFB should be

General Loans (Other than
housing loans)
Loans to Microenterprises
Poor person with annual
income (net of business
expenses) up to Rs. 500,000
within the loan limit of Rs.
250,000/- or below.
Rs. 150,000
Rs. 500,000. Aggregate
exposure against the
enterprise loans in excess of
Rs. 150,000/- shall not
exceed 40%

 The maximum limits of the borrowers’ aggregate exposure shall not exceed Rs. 150,000 for
general loans, Rs. 500,00 for housing loans, and Rs. 500,000 for microenterprise loans. The
aggregate exposure of the borrowers who are eligible to avail both general and microenterprise
loan shall not exceed Rs. 500,000.
 If credit facility exceeds Rs. 30,000, it will be mandatory for MFBs to obtain credit report from
Credit Information Bureau of State Bank of Pakistan.
 Specific Provisioning:

Category Determinant Provisioning Requirement

Other Assets Especially Loans (principal/mark-up) is
Mentioned (OAEM) overdue for 30 days or more
but less than 60 days
Substandard Loans (principal/mark-up) is
overdue for 60 days or more
but less than 90 days
Doubtful Loans (principal/mark-up) is
overdue for 90 days or more
but less than 180 days
Loss Loans (principal/mark-up) is
overdue for 180 days or
more.
Nil
25% of outstanding principal
net of Cash collaterals and
Gold (ornaments and bullion)
realizable without recourse
to a Court of Law
50% of outstanding principal
net of Cash collaterals and
Gold (ornaments and bullion)
realizable without recourse
to a Court of Law
100% of outstanding
principal net of Cash
collaterals and Gold
(ornaments and bullion)
realizable without recourse
to a Court of Law

 The MFB shall maintain a General Provision equivalent to 1.0% of the net outstanding advances
(advances net of specific provisions).
 The rescheduled/restructured loans shall remain classified unless serviced regularly for 6
months excluding grace period (if any) or at least 40% of the outstanding amount principal along
with accrued mark-up is recovered in cash. In cases where rescheduled / restructured loans are
not recovered on revised maturity date, they shall be classified directly as ‘losses’.
 All NPLs shall be charged off, one month after the loan is classified as “Loss”.
 The securities categorized as ‘Held for Trading’ shall be disposed off within 90 days from the
date of their acquisition.
 The maximum investment in such a company or security shall not exceed 10% of paid-up share
capital of that company or 5% of MFBs’ own equity free of losses, whichever is less. For making
investment in excess of the 5% limit, prior permission from SBP shall be obtained. The aggregate
investments in such corporate bodies shall not exceed 10% of MFBs’ equity, free of losses.
 The board shall have:
i) Minimum of seven members.
ii) Not more than 25% of the members from the same family.
iii) At least 2 independent members.
iv) No more than 25% of the members as paid executives of the MFB.
v) Chairman who is not the CEO of the MFB.
 No member of the Board of Directors of a MFB holding 5% or more of the paid-up capital of the
MFB either individually or in concert with his/her family members shall be appointed in the MFB
in any capacity save as the Chief Executive of the MFB.
 MFBs may determine a ‘reasonable fee’ but not exceeding Rs. 25,000 per meeting. If meetings
of the Board of Directors and its Committees are scheduled on the same day, the MFB shall not
pay a separate fee for each meeting.
 Micro savings accounts can be opened after establishing identity of customer only, and upon
approval of the branch manager. Balance limits for such accounts shall, however, not exceed Rs.
100,000.
 For women in remote areas, MFBs may open their micro-saving accounts, on the basis of
attested copy of CNIC of her father/husband, for six months only.
 MFBs shall obtain CNIC from walk-in customers conducting cash transactions above Rupees one
million whether carried out in a single operation or in multiple operations that appears to be
linked.
 MFBs shall keep record on the identification data obtained through the Customer Due Diligence
(CDD) process, account files and business correspondence for at least Ten (10) years following
the termination of the business relationship.
 The entries booked in the Inter-Branch Accounts and/or Suspense Account must be
reconciled/cleared and taken to the proper heads of accounts within a period of 30 days from
the date entry is made in the aforementioned accounts.
 MFBs shall provide at least half yearly statements of account for all accounts having an average
daily balance of Rs. 10,000/- and above.
 Invariably report in writing to CIB the subsequent clearance of overdues/defaults within three
working days from the date of such repayment/settlement.
Annexures
 The inclusion of supplementary capital for calculating Capital Adequacy Ratio shall be limited to
50% of the Core Capital.
 General provisions or reserves will be limited to maximum of 1.25% of total Risk Weighted
Assets.
 Revaluation reserves reflecting the difference between the book value and the market value will
be eligible up to 50% for treatment under Supplementary Capital.
