KARACHI, July 13: The State Bank has asked all banks to ensure that their clean lending is not used by borrowers to subscribe stocks at the Initial Public Offerings (IPOs).

In a letter issued to all banks and development finance institutions (DFIs) on Wednesday, the central bank said it had noticed certain cases where clean or unsecured consumer loans were utilized for subscription in IPOs.

“The banks/DFIs are advised to institute necessary checks so that clean loans are not used for subscription in IPOs,” says the SBP letter. It advises banks to perform two minimum checks in this connection:

First, at the time of sanction of a clean consumer loan or credit line, the banks/DFIs should obtain an undertaking from the client, that the drawings from the loan account will not be used for subscription in an IPO.

Second, the banks should introduce an internal system, whereby, no cheques, drafts and/or payment instructions will be made for an IPO subscription account from a clean personal loan/credit line account.

The central bank has modified the relevant paras of Prudential Regulations for Corporate and Commercial Banking for this purpose.