Consumer finance: State Bank enhances loan limit to Rs5 million

Condition does not apply to bank employees.

KARACHI: The State Bank of Pakistan (SBP) has increased credit card and personal loan limits to Rs5 million in an apparent bid to encourage provision of consumer finance. Earlier, the limit for credit cards was Rs2 million.

In this regard, the SBP has amended certain provisions of prudential regulations for consumer financing with immediate effect.

According to a circular issued on Thursday, the SBP revised regulation R-7 pertaining to maximum card limit.

Under the revised regulation, banks and development finance institutions (DFIs) will ensure that overall credit card and personal loan limits, both on secured as well as on unsecured basis, availed by a person from banks/DFIs in aggregate should not exceed Rs5 million, at any point in time, subject to the condition that the overall unsecured/clean facilities on account of credit card and personal loan of that individual do not exceed Rs2 million.

The SBP said that in the wake of the amendment, instructions concerning secured personal loans (other than secured against liquid assets) mentioned in regulation R-23 stand withdrawn.

It also amended regulation R-3 by adding a new provision which states, “banks/DFIs may waive the requirement of 50 per cent debt burden in case a credit card and personal loan is properly secured through liquid assets (as defined in prudential regulations) with a minimum 30 per cent margin.”

With regard to regulation R-1 pertaining to facilities to related persons, the SBP replaced the first paragraph with the following paragraph:

“This condition shall not apply to the consumer financing allowed by banks/DFIs to their employees as part of a compensation package provided the detailed terms and conditions of the benefits which the banks/DFIs want to give to their employees are specifically mentioned in the employees service rules/HR policy. These employees service rules and HR policy should be approved by the board of directors. Further, such consumer financing to the employees should be treated as staff loans and not as general consumer loans.”

Commenting on the central bank’s move, InvestCap Head of Research Khurram Schehzad said that the increase in loan limits will be an attraction for consumers and banks too will be encouraged to shift focus from heavy investment in government securities (treasury bills and investment bonds) and provide financing to consumers. He said though interest rates are quite high on credit cards and consumer finance, the availability of money will help people to start small businesses as well as purchase homes and cars. Default fears are still there because of the high interest rates, but banks may still go for providing credit to people, he added.

Published in The Express Tribune, January 7^th, 2011.