Prudential Regulations Consumer 2/2

 

Prudential Regulations Consumer

We have compiled a summary of prudential regulations for consumer financing in this 2nd part. Additionally, separate regulations for credit cards, auto loans, and personal loans are as follows:

Prudential Regulations Consumer – Credit Card

Prudential Regulation Consumer O-1

The banks should take reasonable steps to satisfy themselves that cardholders have received the card and advise them to keep the card safe and PIN secret.

Prudential Regulation Consumer O-2

After cardholders served a notice that card is lost or stolen, banks shall be held liable for all the transactions held after said notice.

However banks shall be liable for those amounts which are wrongly charged to the credit card holder account, the banks are advised to take insurance / takaful coverage for wrongly charged amounts and frauds.

The banks shall obtain consent via different sources, such as recorded lines, ATM, Integrated Voice Recording, credit card application or form, for charging value-added service.

Prudential Regulation Consumer O-3

Banks shall mention the payment due date on account statement, and the agreement must mention the penalty amount in case of non-payment.

Prudential Regulation Consumer O-4

Foreign Currency Transactions

The bank shall convert foreign currency as per their approved policy and disclose all additional amounts to the customer. Additionally, in the monthly statement, the bank shall mention the foreign currency amount, conversion rate, including foreign exchange conversion fees, and the total transaction amount in PKR.

Prudential Regulation Consumer R-9

Classification and Provision

Classification	Determinant	Treatment of Income	Required Provision
Loss	Principal / markup is overdue for 180 days or more	Unrealized markup to be transfer in suspense account and not to credit to income unless realized in cash.	100% provision of difference of outstanding amount and liquid securities

Prudential Regulations Consumer -Auto Loans

Prudential Regulation Consumer R-10

These regulations are applicable on vehicles which are used personally including light commercial vehicles.

Prudential Regulation Consumer R-11

Maximum tenure of auto financing shall not exceed 7 years.

SBP has updated R-11 via BPRD circular letter no. 19 of 2022 regarding maximum tenure which is reduced from 5 years 3 years for vehicles above 1,000 cc engine and from 7 years to 5 years for vehicles up to 1,000 cc engine.

Prudential Regulation Consumer R-12

The minimum down payment should not be below 15% of the value of the vehicle. In addition, financing shall be provided for the amount which is ex-factory tax paid and cost of ancillary items like tracker and CNG kit. However, the premium charged by dealers or investors should not be financed.

SBP has updated R-12 via BPRD circular letter no. 19 of 2022 has revised minimum down payment from 15% to 30%. Also, overall auto loans / financing availed by one person from all banks / DFIs, shall not exceed Rs.3 million in aggregate.

Prudential Regulation Consumer R-13

The vehicles financed by the banks are required to be secured by way of hypothecation. Moreover, payment shall directly be made to the manufacturer or authorized dealer by the bank and upon delivery, the vehicle will immediately be hypothecated to the bank.

Prudential Regulation Consumer R-14

The banks shall all the time ensure that vehicle remains properly insured. However, in case of if 100% provision by the bank it may not insure it for remaining tenure.

Regulation O-5

The bank shall develop an appropriate procedure for repossession and subsequent disposal of a vehicle. Additionally, the specific default period after which repossession can be initiated must be mentioned in the agreement. Furthermore, the banks shall charge actual expenses of repossession, which should be listed in the schedule of charges.

Regulation O-6

The bank shall return the registration file and issue a no objection certificate after repayment or settlement of financing.

Regulation O-7

The banks shall not finance used cars older than 9 years. The cars older than 5 years up to 9 years can only be finance if repayment is restricted within 12 years of such car age.

SBP has inserted below sentence at the end of existing O-7 via BPRD circular letter no. 19 of 2022;

New as well as used imported cars shall not be eligible for auto financing from banks / DFIs.

Regulation O-8

The banks has maintained panel list of authorized auto dealers in good numbers.

Prudential Regulation Consumer R-15

Auto loans shall be classified as follows:

Classification	Determinant	Treatment of Income	Required Provision
Substandard	Principal / markup is overdue for 90 days or more	Unrealized markup to be transfer in memorandum account and not to credit in income account unless realized in cash.	25% provision of difference between outstanding amount and liquid securities
Doubtful	Principal / markup is overdue for 180 days or more	As above	50% provision of difference between outstanding amount and liquid securities
Loss	Principal / markup is overdue for 1 year or more	As above	100% provision of difference between outstanding amount and liquid securities

Prudential Regulations Consumer – Personal Loans

Prudential Regulation Consumer R-16

Where financing has been extended to purchase a durable item, including a computer and accessories, the same shall be hypothecated, in addition to other securities.

Prudential Regulation Consumer R-17

The maximum tenure of the financing shall not exceed 5 years. Educational purpose loan is available for 7 years on the condition that direct disbursement is made to the educational institution.

SBP has updated R-17 via BPRD circular letter no. 19 of 2022, the maximum tenure of personal financing is decreased from 5 years to 4 years but not applicable to education loan.

Prudential Regulation Consumer R-18

In case of running finance it shall be ensured that at least 15% of maximum utilization of financing during the year is cleaned up by the borrower for a minimum period of one week. Otherwise, the facility shall be classified.

However, where banks require their customers to repay a minimum amount each month, are compliant and there is no requirement of classification if aggregate cumulative monthly installments exceed 15% clean up requirement.

Prudential Regulation Consumer R-19

In revolving/facilities of a similar nature, banks may renew the facility annually, as per international industry practice and based on factors such as income profile, repayment behavior, and credit line usage. Provided that

• Banks shall conduct a complete assessment of the borrower once every 3 years and obtain fresh documents as part of their ongoing due diligence process.

• Review of ECIB report and any overdue.

• Legal opinion stating existing legal documents are secure.

 

Prudential Regulation Consumer R-20

Excess amount deposited or repaid by the customer in revolving credit account shall be adjusted towards the loan account.

Prudential Regulation Consumer R-21

Classification	Determinant	Treatment of Income	Required Provision
Substandard	Principal / markup is overdue for 90 days or more	Unrealized markup to be transfer in memorandum account and not to credit in income account unless realized in cash.	25% provision of difference between outstanding amount and liquid securities
Loss	Principal / markup is overdue for 180 days or more	As above	100% provision of difference between outstanding amount and liquid securities

*The specific provision shall be in addition to general reserves.

Reference:

https://www.sbp.org.pk/publications/prudential/PRs-Consumer.pdf

Link of 1st part is below: 

Prudential Regulations Consumer Financing 1

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