Consumer Financing Regulations: Margin, Credit Cards, and Classification, Exercises of Banking and Finance

Download Consumer Financing Regulations: Margin, Credit Cards, and Classification and more Exercises Banking and Finance in PDF only on Docsity! LESSON 39 PRUDENTIAL REGULATIONS OF SBP PRUDENTIAL REGULATIONS FOR CONSUMER FINANCING Contents to be covered in this Lesson: o REGULATION R-5 :  BAR ON TRANSFER OF FACILITIES FROM ONE CATEGORY TO ANOTHER TO AVOID CLASSIFICATION o REGULATION R-6:  MARGIN REQUIREMENTS o REGULATIONS FOR CREDIT CARDS o REGULATION O-1 o REGULATION O-2 o REGULATION O-3 o REGULATION O-4 o REGULATION O-5 o REGULATION R-7 MAXIMUM CARD LIMIT REGULATION R-8 CLASSIFICATION AND PROVISIONING We have discussed some aspects/regulation of consumer financing in the previous Lesson, we shall continue with the rest of regulations/ aspects in this Lesson. REGULATION R-5 BAR ON TRANSFER OF FACILITIES FROM ONE CATEGORY TO ANOTHER TO AVOID CLASSIFICATION The banks / DFIs shall not transfer any loan or facility to be classified, from one category of consumer finance to another, to avoid classification. REGULATION R-6 MARGIN REQUIREMENTS Banks / DFIs are free to determine the margin requirements on consumer facilities provided by them to their clients taking into account the risk profile of the borrower(s) in order to secure their interests. However, this relaxation shall not apply in case of items, import of which is banned by the Government. Banks / DFIs will continue to observe margin restrictions on shares / TFCs as per existing instructions under Prudential Regulations for Corporate / Commercial Banking (R-6). Further, the restrictions prescribed under paragraph 1.A of Regulation R-6 of the Prudential Regulations for Corporate / Commercial Banking will also be applicable in case of Consumer Financing. State Bank of Pakistan shall continue to exercise its powers for fixation / reinstatement of margin requirements on consumer facilities being provided by banks/DFIs for various purposes, as and when required. REGULATIONS FOR CREDIT CARDS Prudential Regulations for Consumer Financing – Credit Cards- O-1 to O-5 REGULATION O-1 The banks / DFIs should take reasonable steps to satisfy themselves that card holders have received the cards, whether personally or by mail. The banks / DFIs should advise the card holders of the need to take reasonable steps to keep the card safe and the PIN secret so that frauds are avoided. docsity.com REGULATION O-2 Banks / DFIs shall provide to the credit card holders, the statement of account at monthly intervals, unless there has been no transaction or no outstanding balance on the account since last statement. REGULATION O-3 Banks / DFIs shall be liable for all transactions not authorized by the credit card holders after they have been properly served with a notice that the card has been lost / stolen. However, the bank’s / DFI’s liability shall be limited to those amounts wrongly charged to the credit card holder’s account. In order to mitigate the risks in this respect, the banks / DFIs are encouraged to take insurance cover against wrongly charged amounts, frauds, etc. The bank/DFI shall, however, not charge the borrowers’ account with any amount under the head of “insurance premium” (by whatsoever name called) without obtaining consent of each existing & prospective customer in writing. In addition to obtaining consent in writing, the banks/DFIs may also use the following modes for obtaining prior consent of their customers provided proper record is maintained by banks/DFIs:- i. Customer’s consent on recorded lines via out bound/in bound call center (after due verification) ii. ATM screens – screen pop up before conducting transaction and after inputting pin code iii. Signed consent acquired with credit card application or as separate form iv. IVR (Integrated Voice Recording) REGULATION O-4 In case the cardholders make partial payment, the banks / DFIs should take into account the partial payment before charging service fee / mark-up amount on the outstanding / billed amount so that the possibility of charging excess amount of mark-up could be avoided. REGULATION O-5 Due date for payment must be specifically mentioned on the accounts statement. If fine / penalty is agreed to be charged in case the payment is not made by the due date, it should be clearly mentioned in the agreement. Prudential Regulations for Consumer Financing– Credit Card- R-7 & R-8 REGULATION R-7 MAXIMUM CARD LIMIT Maximum unsecured limit under credit card to a borrower (supplementary cards shall be considered part of the principal borrower) shall generally not exceed Rs 500,000/. Banks / DFIs may, however, assign a clean limit beyond Rs 500,000 but not in excess of Rs 2 million to their prime customers who have extraordinary strong repayment capacity, moderate debt burden and a clean track record. But the aggregate outstanding in this respect should not exceed 10% of the total outstanding credit card portfolio at any point in time. However, while availing benefit of this provision, banks / DFIs would place on record well defined criteria for terms "Prime Customers" and "Moderate Debt Burden" approved by their Board of Directors / Chief Executive. Banks / DFIs may also allow financing under the credit card scheme in excess of Rs 500,000/- (up to Rs 2 million) to other customers as well, provided the excess amount is appropriately secured according to the definition given in Part A of these regulations. The loan secured against liquid securities shall, however, be exempted from the above limit. The loans against the securities issued by Central Directorate of National Savings (CDNS) shall be subject to such limits as are prescribed by CDNS / Federal Government / State Bank of Pakistan from time to time. For Charge Cards, pre-set spending limits generated by the standardized systems, as is the global practice, shall be allowed. REGULATION R-8 CLASSIFICATION AND PROVISIONING The credit card advances shall be classified and provided for in the following manner: docsity.com