Financing
/ Regulations/ Policies
by
State Bank of Pakistan
PRUDENTIAL REGULATIONS
FOR
CONSUMER FINANCING
(Updated on January 31, 2011)
BANKING POLICY & REGULATIONS DEPARTMENT
STATE BANK OF PAKISTAN
Disclaimer:
State Bank of Pakistan compiles a booklet of Prudential
Regulations from time to time for convenience of users. Updated version of such
a booklet containing amendments in the regulations made through
circulars/Circular letters to date is being issued. Due care has been taken
while incorporating amendments, however, errors and omission may be expected.
In case of any ambiguity, users are advised to refer to the original
circulars/circular letters on the relevant subject(s), which are available on
SBP’s website (www.sbp.org.pk).
REGULATIONS FOR AUTO LOANS
REGULATION R-9
The vehicles to be utilized
for commercial purposes shall not be covered under the Prudential Regulations
for Consumer Financing. Any such financing shall ensure compliance with
Prudential Regulations for Corporate/Commercial Banking or Prudential Regulations
for SMEs Financing. These regulations shall only apply for financing vehicles
for personal use including light commercial vehicles also used for personal
purposes.
REGULATION R-10
The maximum tenure of the auto
loan finance shall not exceed seven years.
REGULATION R-11
While allowing auto loans, the
banks/DFIs shall ensure that the minimum down payment does not fall below 10%
of the value of vehicle. Further, banks/DFIs shall extend auto loans only for
the ex-factory tax paid price fixed by the car manufacturers. In other words,
banks/DFIs cannot finance the premium charged by the dealers and/or investors
over and above the ex-factory tax paid price of cars, fixed by the
manufacturers.
REGULATION R-12
In addition to any other
security arrangement on the discretion of the banks/ DFIs, the vehicles
financed by the banks/DFIs shall be properly secured by way of hypothecation.
Payments against the sale orders issued by the manufacturers are allowed till
the time of delivery of the vehicle subject to the condition that payment will
directly be made to the manufacturer/authorized dealer by the bank/ DFI and
upon delivery, the vehicle will immediately be hypothecated to the bank/ DFI.
REGULATION R-13
The banks/DFIs shall ensure
that the vehicle remains properly insured at all times during the tenure of the
loan. However, where the bank/DFI holds 100% provision against such loan,
bank/DFI, if deemed appropriate, may not obtain insurance cover for the vehicle
for remaining tenure of the loan.1
REGULATION O-6
The clause of repossession in case of default should be clearly
stated in the loan agreement mentioning specific default period after which the
repossession can be initiated. The repossession expenses charged to the
borrower shall not be more than actual incurred by the bank/DFI. However, the
maximum amount of repossession charges shall be listed in the schedule of
charges provided to customers. The banks/DFIs shall develop an appropriate
procedure for repossession of the vehicles and shall ensure that the procedure
is strictly in accordance with law.
A detailed repayment schedule should be provided to the borrower
at the outset. Where alterations become imminent because of late payments or
prepayments and the installment amount or period changes significantly, 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. Further, even in case
of insignificant changes, upon the request of the customer, the bank/DFI shall
provide him revised repayment schedule free of cost.
REGULATION O-8
The banks/DFIs desirous of financing the purchase of used cars
shall prepare uniform guidelines for determining the value of the used
vehicles. However, in no case the bank/DFI shall finance the cars older than
five years.
REGULATION O-9
The banks/DFIs should ensure that a good number of authorized auto
dealers are placed at their panel to eliminate the chances of collusion or
other unethical practices.
REGULATION R-14
The auto loans shall be classified and provided for in the
following manner:
CLASSIFICATIO
|
DETERMINANT
|
TREATMENT OF
|
PROVISIONS TO
|
N
|
|
INCOME
|
BE MADE*
|
(1)
|
(2)
|
(3)
|
(4)
|
|
|
|
|
1. Substandard.
|
Where mark-up/
|
Unrealized mark-
|
Provision of 25% of the
|
|
interest or
|
up/interest to be kept in
|
difference resulting
|
|
principal is
|
Memorandum Account
|
from the outstanding
|
|
overdue by 90
|
and not to be credited to
|
balance of principal
|
|
days or more from
|
Income Account except
|
less the amount of
|
|
the due date.
|
when realized in cash.
|
liquid assets.
|
|
|
Unrealized mark
|
|
|
|
up/interest already taken
|
|
|
|
to income account to be
|
|
|
|
reversed and kept in
|
|
|
|
Memorandum Account.
|
|
2. Doubtful.
|
Where mark-up/
|
As above.
|
Provision of 50% of the
|
|
interest or
|
|
difference resulting
|
|
principal is
|
|
from the outstanding
|
|
overdue by 180
|
|
balance of principal
|
|
days or more from
|
|
less the amount of
|
|
the due date.
|
|
liquid assets.
|
3. Loss.
|
Where mark-up/
|
As above.
|
Provision of 100% of
|
|
interest or
|
|
the difference resulting
|
|
principal is
|
|
from the outstanding
|
|
overdue by one
|
|
balance of principal
|
|
year or more from
|
|
less the amount of
|
|
the due date
|
|
liquid assets.
|
