KARACHI, Nov 24: The prudential regulations are being revised and procedures are being simplified to promote consumer banking.

In consultation with the Pakistan Banking Association, the State Bank is working on amendments to the prudential regulations to enable the commercial banks to start lending against consumer durables.

To quote Zubyr Soomro, country head of the Citi Bank, the existing prudential regulations are primarily designed for corporate financing and these need to be revised to facilitate financing of small and medium sized industries and promote consumer banking.

The Pakistan Banking Association has set up two sub- committees to study the prudential regulations and suggest amendments for consideration of the State Bank. The consumer banking sub-committee is headed by Haroon Bashir. Qaiser Hanif Naseem heads the sub-committee on small and medium sized industries. The PBA sources said that they were working in close co-ordination with the State Bank officials.

With a shift in official policy, the big corporates are required to raise funds from the capital market through Term Finance Certificates for medium and long-term requirements and commercial banks provide short-term financing. Small and even medium sized industries often do not have the ability to raise funds from the capital market. The concept of development financial institution is dead and the commercial banks are not willing to take long term risks. They still have mountain of bad debts, impacting on their balance-sheet. They also do not accept long-term deposits which could match against long-term assets.

In the field of consumer banking, car leasing has been a great success. The car sales have increased sharply because of lease financing. According to Leasing Association of Pakistan, vehicles accounted for 27.15 per cent of the asset-wise lease disbursement during 1999-2000.

With corporate investment shrinking, the foreign banks, with expertise, have also taken the initiative to move into consumer banking aggressively. It is riskier business but the gains are commensurate with the risks.

House-building finance is the main engine of growth of consumer banking. A House Refinance Window has been set up at the SBP. The banks have also been allowed to float TFCs to match housing assets with liabilities. The lending limit for house finance has been raised to Rs5 million. Tax deduction has also been allowed to borrowers on account of financial charges.

Consumer banking may also help raise current purchasing powers of the consumers through mortgage of future incomes and increase the demand for goods and spur industrial production. It would also help in documentation of the economy.

Bankers estimate that there are at least 30 million people in big cities and small towns who need to borrow to buy various goods— vehicles, property and durables, etc. And consumer banking is tailored to offer a wide of financial services and facilities to individuals. Consumer banking is so far restricted to major cities like Karachi, Lahore and Islamabad.

It is consumer and business confidence that stimulates capital investment and spurs economic growth. The lack of business and consumer confidence has plunged US economy into deeper recession. Whereas corporate investment may be sluggish in Pakistan, there is some scope for increasing consumer spending, through consumer banking.