ISLAMABAD, Jan 21: The Securities and Exchange Commission of Pakistan on Wednesday issued prudential regulations for the non-banking finance companies (NBFCs) under which up to 80 per cent of credit could be extended against an equity of 20 per cent.

Etrat H. Rizvi, Commissioner of SECP, told a news conference here that these regulations were necessitated due to amendments in the Companies Ordinance 1984, whereby all the existing NBFIs with the exception of modarabas and development financial institutions (DFIs) have been re-classified as NBFCs and brought under the SECP regulatory domain.

The objective was to introduce a uniform set of regulations for all NBFCs in order to improve their effective risk management capabilities and to promote corporate governance in the non-bank financial sector. These would include modarabas, leasing companies, venture capitals, housing finance companies, non-banking finance companies, etc. He said the regulations also covered money-laundering and other unlawful trades.

He said the total outstanding exposure by an NBFC to any single person shall not at any point in time exceed 30 per cent of the NBFC's equity, subject to the condition that the maximum outstanding against fund based exposure does not exceed 20 per cent of the NBFC's equity.

The total outstanding exposure by NBFC to any group shall not exceed 50 per cent of the NBFC's equity subject to the condition that the maximum outstanding against fund-based exposure does not exceed 35 per cent of the NBFC's equity.

For housing finance, the maximum per party limit by NBFCs will be Rs7.5 million. NBFCs are free to extend mortgage loans for housing for a period not exceeding 20 years.

The house financed by NBFCs shall be mortgaged in NBFC's favour by way of equitable or registered mortgage. The housing finance facility shall be provided a maximum loan to value ratio of 85:100 (85 per cent). The facility shall be provided at a maximum of income to instalment ratio of 3:1.

When considering proposals for fund/non-fund based facility exceeding one million rupees, NBFCs should give due weightage to credit report relating to the borrower and his group obtained from credit information bureau of the State Bank of Pakistan.

While granting any facility to the customers other than individuals, NBFC shall obtain copy of accounts relating to the business of its borrower for analysis and record.

Every NBFC shall, before providing any facility ensure that the loan application form prescribed by the NBFC is accompaniedby a borrower's basic fact sheet.

While taking any exposure, NBFCs shall ensure that the total exposure availed by any borrower from financial institutions does not exceed 10 times of the borrower's equity as disclosed in its financial statement.

Following minimum margins shall be maintained against various facilities and all guarantees will be backed by 100 per cent realisable securities:

(a) In case of performance bonds, the condition of 100 per cent cover of realizable securities may be relaxed subject to minimum compulsory realisable security cover equivalent to 20 per cent of the amount of the performance bond.

(b) In case of guarantees issued against mobilization advance, the advance of 100 per cent cover of realizable securities may be relaxed subject to certain conditions.

NBFCs shall not hold shares in any company whether as pledgee, mortgagee or absolute owner of any amount exceeding 30 per cent of the paid-up share capital of that company or 30 per cent of their own paid-up share capital and reserves whichever is less.

Exposure against the share of listed companies shall be subject to minimum margin of 30 per cent of their current market value, though NBFC may set higher margin requirements keeping in view other factors.

NBFCs will monitor the margin on, at least, weekly basis and will take appropriate action for top-up and sell-out on the basis of their board of directors approved credit policy and prefect written authorization from the borrower enabling NBFCs to do this.

For the prevention of criminal use of NBFCs for the purpose of money laundering and other unlawful trades, the NBFCs shall follow guidelines issued to safeguard themselves against their involvement in money laundering activities and other unlawful trades.

NBFCs shall accept deposits from an investor only after ensuring that an account has been opened in the investor's name using an account opening form. NBFCs shall make reasonable efforts to determine the true identity of the customer before extending their services and particular care shall be taken to identity ownership of all accounts and those using safe custody facilities, effective procedures shall be instituted for obtaining identification from new customers.

Regulations on the same pattern would be issued in a weeks time to regulate modarabas because these are governed under a separate law and are not covered under the companies ordinance.