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Credit Manual

United Bank Limited


2013

Table of Contents
INTRODUCTION..................................................................................................6
PORTFOLIO MANAGEMENT..............................................................................7
1.1 Portfolio management..............................................................................................7
1.1.1 Maximum Exposure Guidelines (MEG).............................................................7
1.2 Supervisory Role:.....................................................................................................8
TARGET MARKET AND PRODUCTS..................................................................9
2.1 Target Market...........................................................................................................9
2.1.1 Target Market CBG..........................................................................................10
2.1.2 Target Market RB.............................................................................................10
2.1.3 Guidelines........................................................................................................11
2.1.4 Responsibilities................................................................................................11
2.2 Products.................................................................................................................12
2.2.1 Short Term Credit Facilities.............................................................................12
2.2.2 Term Credit Facilities.......................................................................................14
2.2.3 Project Finance...............................................................................................17
2.2.4 Guarantees (Bonds)........................................................................................18
2.2.5 Documentary Letters of Credit........................................................................22
2.2.6 Financing Against Shares (FAS).....................................................................24
2.2.7 Islamic Banking Products................................................................................25
2.3 Facilities to be taken Over/Swapped from Other Banks/FIs..................................25
CREDIT INITIATION...........................................................................................27
3.1 Standard Credit Application (SCA)........................................................................27
3.1.1 SCA for Credits above Rs. 75 M.....................................................................27
3.1.2 Documents required for credits upto Rs. 75 M...............................................28
3.2 Responsibility.........................................................................................................29
3.3 Lines and Special Transactions (One Offs)...........................................................30
3.3.1 Sub-Allocation/Re-Allocation of Approved Credit Facilities............................30
3.4 Risk Rating Systems..............................................................................................32
3.4.1 Obligor Risk Ratings (ORRs)..........................................................................32
3.5 Security Classes (Annexure XII)............................................................................35
3.6 Facility Risk Rating Model (FRR)...........................................................................36
CREDIT APPROVAL..........................................................................................37
4.1 Expected Attributes of Risk Managers/Senior Risk Managers..............................37
4.2 Appointment of Global Relationship Manager.......................................................38
4.2.1 Responsibility of Global Relationship Manager..............................................38
4.3 Credit Approval Structure.......................................................................................38
4.4 Markup parameters................................................................................................39
4.5 Credit Approval Process........................................................................................39
4.6 Unusual Risks........................................................................................................40
4.7 Politically Exposed Entities....................................................................................41
4.8 Revaluation............................................................................................................41
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DOCUMENTATION AND DISBURSEMENT......................................................42


5.1 Documentation Responsibilities.............................................................................42
5.2 Documentation.......................................................................................................43
5.2.1 General............................................................................................................43
5.2.2 Lodgment.........................................................................................................45
5.2.3 Temporary Release.........................................................................................45
5.2.4 Permanent Release.........................................................................................45
5.2.5 Expired Documentation...................................................................................45
5.2.6 Copies in Credit Files......................................................................................46
5.2.7 Witness............................................................................................................46
5.2.8 Minimum Prescribed Documents for Fund based Facilities............................46
5.2.9 Assigned Contract Proceeds Acknowledgement.........................................46
5.2.10 Letter of Guarantee (Company)....................................................................47
5.2.11 Deferrals of Security/Support Documentation...............................................47
5.2.12 Facility Offer Letter (FOL)..............................................................................48
5.2.13 Customers admittance of outstanding Funded +Non Funded exposure on
semiannual basis......................................................................................................49
5.3 General Rules........................................................................................................49
5.4 Facility Utilization...................................................................................................55
5.5 Execution of Agreement.........................................................................................55
VENDOR MANAGEMENT.................................................................................56
6.1 Purpose..................................................................................................................56
6.1.1 Valuator...........................................................................................................56
6.1.2 Mucaddam.......................................................................................................56
6.1.3 Clearing and Forwarding Agents.....................................................................56
6.1.4 Business Information Report Provider............................................................57
6.2 VMC Definition and Constitution............................................................................57
6.3 Enlistment of Vendors............................................................................................57
6.3.1 Scrutiny of Vendors Enlistment.......................................................................58
6.4 Addition of Regions................................................................................................59
6.5 Evaluation of Vendors............................................................................................60
6.5.1 Performance Evaluation of Vendors................................................................60
6.5.2 Suspension......................................................................................................61
6.5.3 Delistment........................................................................................................62
6.5.4 Vendors Delisted/Re-Instated by PBA/UBL....................................................62
6.6 Services of Vendors...............................................................................................62
6.6.1 Valuator...........................................................................................................62
6.6.2 Mucaddam.......................................................................................................63
6.6.3 Clearing and Forwarding Agents.....................................................................67
6.6.4 Business Information Report Service Provider...............................................68
6.7 Limit Enhancements..............................................................................................70
6.7.1 Limit Enhancement- Valuator/ Mucaddam......................................................70
6.7.2 Limit Enhancement- C&F Agents....................................................................70
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6.8 One-Off Approval- C&F Agents..............................................................................71


CREDIT MAINTENANCE...................................................................................72
7.1 Credit Process........................................................................................................72
7.1.1 Administration of Approved Credit Facilities....................................................72
7.1.2 Maintenance of Credit Information..................................................................82
7.1.3 General Guidelines..........................................................................................83
7.2 Annual Review and Renewals...............................................................................84
REMEDIAL MANAGEMENT..............................................................................86
8.1 Credit Classifications Responsibility......................................................................86
8.1.1 Watchlist..........................................................................................................86
8.1.2 Adverse Classification.....................................................................................87
8.2 Classifiable Exposure............................................................................................89
8.3 Excluded Credit Exposures....................................................................................89
8.4 Initiating or Changing Adverse Classifications.......................................................89
8.5 Remedial Action/Strategy.......................................................................................89
8.5.1 Formal Action Plan..........................................................................................90
8.5.2 Documentation Review...................................................................................90
8.5.3 Classified Credit Reviews (CCRs)..................................................................91
8.6 Provisions...............................................................................................................92
8.6.1 Specific Reserves............................................................................................92
8.6.2 General Reserves...........................................................................................95
8.6.3 Frequency........................................................................................................95
8.7 Responsibility/Reporting........................................................................................95
8.8 Special Assets Management..................................................................................95
8.8.1 Transfer of Accounts to SAM/SAM RCADs.....................................................95
8.9 Recovery Process..................................................................................................98
8.9.1 Traditional Work Out Modes............................................................................99
8.9.2 Non Traditional Work Out Modes..................................................................100
8.9.3 Litigation........................................................................................................102
8.10 Write-offs............................................................................................................102
8.10.1 Write-off Mechanism...................................................................................102
8.11 Condonation and waivers...................................................................................103
LIST OF ANNEXURES.....................................................................................104

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Abbreviations
B/L
BOD
C&F
BRMC
CAD
CBG
CCR
CDC
CIB
CLC
CM
COD
CP
CRM
DAC
DFI
DH
DO
DP
DPL
ERF
ECA
FAPC
FBP
FE
FI
FIFO
FIM
FIRMU
FRR
FSV
FTR
GE
GRM
HRA
IBG
IFDBCs
L/C
LAPC
LG
LIM

Bill Of Lading
Board Of Directors
Clearing & Forwarding
Board Risk Management Committee
Credit Administration Department
Corporate Banking Group
Classified Credit Review
Central Depository Company
Credit Information Bureau
Chief Legal Council
Classification Memorandum
Clean Overdraft
Commercial Paper
Credit Risk Management
Disbursement Authorization Certificate
Development Financial Institution
Divisional Head
Delivery Order
Sight Letter Of Credit
Drawing Power Limit
Export Refinance
Engagement Committee Approval
Finance Against Packing Credit
Foreign Bills Purchased
Foreign Exchange
Financial Institution
First In First Out
Finance Against Imported Merchandise
Financial Institution Risk Management Unit
Facility Risk Rating
Forced Sale Value
Finance Against Trust Receipt
Group Executive
Global Relationship Manager
Head Retail Assets
Investment Banking Group
Inward Foreign Documentary Bills For Collection
Letter Of Credit
Loan Against Packing Credit
Letter Of Guarantee
Loan Against Imported Merchandise
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LOS
LTFF
LTR
MEG
MML
NAB
NICF
NIDF
NOC
NPL
NSC
ORR
PAD
PBA
PKR
PO
POA
PPM
PR
PSR
PTD
RAC
RCAD
RCH
RHCA
RM
SAM
SBLC
SBP
SCA
SECP
SOD
SRM
SSC
TFC
TL
TPC
TR
UBL
USD
VMU

Loan Origination System


Long Term Finance Facility
Loan Against Trust Receipt
Maximum Exposure Guidelines
Money Market Line
National Accountability Bureau
Non Interest Cash Finance
Non Interest Demand Finance
No Objection Certificate
Non Performing Loan
National Saving Certificate
Obligor Risk Rating
Payment Against Documents
Pakistan Banks Association
Pakistan Rupee
Pay Order
Power Of Attorney
Product Program Manual
Prudential Regulations (SBP)
Pre Settlement Risk
Permanent Transfer Deed
Risk Acceptance Criteria
Regional Credit Administration Department
Regional Cluster Head
Regional Head Commercial Assets
Relationship Manager
Special Asset Management
Standby Letter Of Credit
State Bank Of Pakistan
Standard Credit Application
Security & Exchange Commission
Secured Overdraft
Senior Risk Manager
Special Saving Certificate
Term Finance Certificate
Team Leader
Trade Processing Centre
Trust Receipt
United Bank Limited
USA Dollar
Vendor Management Unit

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INTRODUCTION
At UBL, Risk & Credit Policy Group look after various risks embedded in the lending
activities of the bank. Credit Risk accounts for major risk associated with the bank. This
requires thorough vigilance, monitoring and control.
Credit Policy & Procedures updated in year 2006 have been separated and updated to
form two separate documents; Credit Policy and Credit Manual. Credit Policy 2013 is
recently formulated and approved by BRMC/BOD while this Credit Manual is separately
formulated. This document defines procedural guidelines for products and lending cycle
from credit initiation to remedial management.
This document has been created keeping in view the current requirement at the Bank
which will aid in seamless accomplishment of the Credit Policy rules and guidelines.
Ownership, Maintenance and Approval
Risk & Credit Policy Group is the owner of this document while the process and
procedures laid out here are owned and followed by all concerned departments
handling credits. Policy guidelines described in this document are minimum
requirements under normal circumstances. However, Risk & Credit Policy Group may
make amendments or establish additional controls whenever appropriate.
Credit Policy Division will propose changes or additions in this document, if required,
and the final approval authority for these changes/additions and renewal of the
document is GE R&CP.
Review Period
This document will be reviewed after three years. Meanwhile, any amendments can be
made from time to time if required.

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CHAPTER 1
PORTFOLIO MANAGEMENT
1.1 Portfolio management
Some concentration limits are already defined in Credit Policy and now additional
Concentration limits for portfolio management are being introduced in the bank as
follows:
1.1.1 Maximum Exposure Guidelines (MEG)
a) Maximum Exposure guidelines for single Obligor vis a vis clients equity.
All CBG/RB/Greenfield limited recourse long-term loans cases will have a cap on
exposure Total Financing limits (Funded + Non-funded, while exposure for ERF and non
funded facilities to be calculated based on SBP PR definition of exposure) of one time of
equity (Equity+ general reserve+ retained earnings+ revaluation reserve+ sponsors
subordinated debt+ other equity equivalent).
This will restrict UBL exposure to high risk customers to 25% of total borrowing capacity
of the customer as SBP PR allows exposure upto four time of equity. For project finance
and CBG customers, this will allow multiple large banks sharing the load in case of
unexpected risks.
For CB/CBG sole bank relationship customers, the cap on exposure Total Financing
limits (Funded + Non-funded, while exposure for ERF and non funded facilities to be
calculated based on SBP PR definition of exposure) as explained above will be two
times of equity all other terms being the same. This will provide adequate coverage of
security and commitment of sponsors.
b) Maximum Exposure Guidelines for each ORR category.
Each ORR category (from ORR 1 to ORR 6) will be applicable for Total Financing limits
(Funded + Non-funded. Exposure for ERF and non funded facilities to be calculated
based on SBP PR definition of exposure). Following table shows Maximum Exposure
for CBG and RB category

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ORR
1
2
3
4
5
6

CBG
18
12
7
4
1.5
1

RB
18
12
5
2.5
1
0.5

ORR 7, 8 & 9 being Watchlist Category requires hold of existing level of Total Financing
Limits (Funded + Non-funded, while exposure for ERF and non funded facilities to be
calculated based on SBP PR definition of exposure) with clear strategy for remedial
actions. However, one level higher Credit Committee may enhance/alter facilities for
restructuring / reviving the customer as required.
The above two MEG limits (a) & (b) will be applicable to all new customers and
enhancement of existing customers Total Financing Limits (Funded + Non-funded, while
exposure for ERF and non funded facilities to be calculated based on SBP PR definition
of exposure). However, all existing customers who are violating these caps (MEG a &
b) will be kept at same Total Financing Limits (Funded + Non-funded, while exposure for
ERF and non funded facilities to be calculated based on SBP PR definition of exposure)
level during interim/annual renewal and relevant Credit Committee will individually
decide and approve hold or reduction as deemed fit. (CAD to provide summary of all
existing customers on quarterly basis to Head CRM and HCP)
Any exceptions in MEG (a) & (b) for cases falling ORR 1 to ORR 6 will require sign off of
HCP in addition to the relevant CC.
Note: The above guidelines will not apply to All PPM based client relationships.
1.2 Supervisory Role:
In order to strengthen Supervisory Role of Credit Approvers (Risk Managers/Senior Risk
Managers) in CRM (for both Corporate and Commercial Credits), Credit approval review
process is being implemented in the bank.
All Credit approvers are required to review the approved credits of their one level down
credit approvers. This is applicable till the level of Head CRM (meaning the final level
reviewing one level down credit approvals will be Head CRM).

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CHAPTER 2
TARGET MARKET AND PRODUCTS
2.1 Target Market
It is important for the business groups (such as Corporate Bank, Commercial and Retail
Bank, etc.) and risk group to identify and develop target markets and listing of alternate
business strategies.
Different business groups which are writing assets in the bank are operating in different
market conditions and geographies. They are catering to different industry sectors and
various sizes of customers. It is therefore essential to formulate clear Target Market
identification for smooth handling of customers and managing the credit risk
appropriately.
Product Identification there are certain given products for lending in the prevailing
banking system and these products are being utilized by the customers in best possible
way. However, only through a comprehensive survey of the market, can a potential
business opportunity be identified. New product development on an ongoing basis
important and bank do endeavor to do so.
Industry Concentration Credit Policy Division looks after portfolio management of bank
loans and formulates various measures including concentration limits and monitors
them from time to time. Industry Concentration limit is important to have a diversified
portfolio. While developing target markets business groups must also review industry
concentrations in order to establish diversified exposure limits.
Screening For individual Industry Segment, a workable and appropriate Risk
Acceptance Criteria (RAC) is required to be developed and used to screen the market
in a structured manner. The Criteria defines the basic level of acceptability for a risk
asset. Bank will develop RACs for major industry sectors after having detailed study of
these industries. The responsibility for developing these RACs for all major industries
and to regularly update them lies with Research Department of the Bank working
closely with CRM and Credit Policy Division.
It is also important to note that the Bank as a large existing Loan portfolio which was
build up over decades without any RAC screening. Once the RACS are mapped with
the existing clients of an industry sector there would be number of customers which
would be following below the RCA hurdle. These Customers will be handled in a normal
way and relevant Credit Committee will have the authority to decide about the exposure
levels of such customers.

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For fresh customers being booked in various industry sectors the mapping against
existing RAC hurdle of that industry will be highlighted in the SCA and relevant Credit
Committee may evaluate the risk and mitigate it through better facility and security
structure.
For any industry sector where an appropriate RAC has not been developed, Business
Groups and relevant Credit Committee will decide how to assume additional risk in that
industry sector.
The current target market definition for various business groups is given as follows:
2.1.1 Target Market CBG
The target market for CBG will be the corporate clients in all industry sectors of the
country and in the areas where the Corporate Centers are present. In these areas the
attributes of clients will be:

Sales/Turnover to be more than Rs. 1.5 Billion, and


UBLs exposure to be Rs. 300 Mn & above (Funded & Non-Funded) on per party
basis, or
UBLs exposure to be Rs. 500 Mn & above (Funded & Non-Funded) on a per group
basis (if more than one company of the group has borrowing relationship with UBL).

Clients handled other than the Corporate Centers region, even if their exposure falls
under the CBG target market, shall be handled by Retail Bank. However, if special
circumstances arises & customers willingness is obtained, the Group Executive-R&CP
jointly with the Group ExecutiveCBG & Group ExecutiveRB can transfer the
relationship handling to CBG; to be handled on a remote basis.
2.1.2 Target Market RB
Retail bank target market for Commercial, Seasonal, SME, Commodity, Trade related
products & Agriculture will be as per the Prudential Regulation & exposure handling
requirement of SBP respectively for each segments. This will also cover all industry
sectors of the country.
Retail bank is present across the country in many regions in form of Commercial
Centres or Branches & it will be handling all the assets requirements of such regions. In
regions where both CBG & RB are present, all assets which are not falling under CBG
target market will be handled by RB in Commercial Centres or branches. However,
certain type of industry which are not sophisticated & involve RB handling of relationship
will be handled by RB even if they fall under the target market of CBG due to exposure
& sales attributes. All such existing relationship being handled by RB (more than Rs.
300 Mn exposure per company) will continue to reside in RB. Any fresh client which is
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required to be booked by RB & falls under CBG target market will require NOC from
Regional Corporate Head of the concerned region of CBG.
Additionally, GOP commodity operations (TCP, PASSCO, Govt of Punjab, Govt of
Sindh, etc.) will be handled by RB.
2.1.3 Guidelines

Business groups will formulate target markets in coordination with the Credit Policy
division for all business segments. Target market formulation will be conducted
through study of banking industry of the country and the prevailing segmentations of
the industry sectors, geographies, etc; and
For section of market where there are standardized lending products and techniques
the Product Program Manuals (PPMs) will be prepared to facilitate marketing and
quick approvals for standard products.

2.1.4 Responsibilities
Ownership of given Target Market lies with each Business group and changes required
needs to be discussed and finalized with Risk & Credit Policy Group.
For the standardized products business groups will be responsible to develop and
originated Product Program Manuals. After recommendation by respective Business
Units and respective Group Heads, PPMs will be approved by Head Credit Policy and
GE R & CP.
For matters relating to the Credit Administration Division (CAD), Operations, Finance,
Treasury, etc. relative Division Heads and/or Group Heads will also be consulted and
sign off will be obtained.
Product Program Manuals will be originated and recommended by respective Business
Units and will be approved by respective Group Heads including Group Executive (Risk
& Credit Policy). For matters relating to the Credit Administration Division (CAD),
Operations, and Treasury, relative Division Heads and/or Group Heads will also be
consulted.
Development of Product Program Manuals is an ongoing process, made all the more
necessary as more innovative products come on line. A list of currently approved
manuals is shown in Annexure No. I.
Credit Proposals need to be in line with target market screens. Risk Acceptance Criteria
screen scoring and respective hurdle scores become effective for those industries
where industry studies have been completed and Risk Acceptance Criteria are in place.

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2.2 Products
Bank offers wide variety of products including short term credit facilities, trade products,
term credit facilities and Islamic banking products. While Credit Policy defines products
offered by the bank in detail, procedural matters where further explanations are required
are detailed as under:
2.2.1 Short Term Credit Facilities
2.2.1.1 Foreign Bills Purchased against L/C (FBP) & FBP (Disc)
Bank may extend financial accommodation through negotiation and/or discounting of a
foreign documentary bill accompanied by relevant documents of title to goods at the
prevailing exchange rate. For financing of export bills drawn under a letter of credit it
should be ensured that:

The document has been drawn strictly as per the terms of the letter of credit;
All direct bank expenses i.e. foreign correspondents charges, claimed by the
opening/reimbursing bank, if any, shall be recoverable from the exporters unless it is
expressed in the letter of credit that charges are on the openers account;
Due care and necessary precautions are exercised before negotiating/discounting of
documents;
Reimbursement instructions in letters of credit are carefully studied before
negotiating/discounting of documents;
If the bill of exchange is accepted by a Bank approved by the FIRMU, the associated
risk for discounting will be considered Bank Risk; and
A letter of indemnity is obtained from the customer by TPC.

If documents are complete but not exactly as per terms of L/C it will be considered as
bank risk and will be booked as FBP (Disc).
2.2.1.2 Payment Against Documents under sight L/C (PADs)
Import documents received under sight letter of credit are lodged in PAD, and are
retired upon payment including markup (on PAD) from the customer. Import documents
shall be checked strictly in terms of the letter of credit to ensure that there is no
discrepancy. In case of a discrepancy in the documents, the negotiating bank must be
immediately advised by SWIFT regarding such discrepancy and dealt with accordingly.
In case of import documents received free of discrepancies, the amount of the bill plus
charges, if any, claimed by the negotiating bank, would be converted into Pak
Rupees/local currency at the exchange rate prevailing on the date of lodgment, or at the
booked rate where exchange was booked at the time of opening of the letter of credit as
quoted by the Treasury Division.

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2.2.1.3 Finance/Loan against Imported Merchandise (FIM/LIM)


Facility for financing goods imported under sight letters of credit established by the Bank
may be extended at customers request.
Relationship Managers (RMs) are required to inform their customers and Heads of TPC
to ensure that documents are released to approved Clearing & Forwarding (C&F)
agents after arrangement of funds for custom duty and other charges have been
secured (made).
Exceptions to be reported to Country Head CAD and Head Credit Policy.
2.2.1.4 Booking FIM Liability
PAD will remain outstanding and FIM will not be booked until the goods are physically
handed over to the Banks Mucaddam and placed under pledge. However, in case, LC
is being retired through FE-25 (import) loan, goods cannot be taken under pledge at the
time of booking of liability. In this case FE-25 TR facility will be allowed, subsequently,
FE- 25 (TR) will be transferred to FE- 25 Pledge within a maximum period of 20 days.
Similar procedure shall be followed for loans booked in PKR.
If partial shipments are allowed under LC, FIM will also be booked in tranches. The
Mucaddam shall submit a stock report in order to calculate the drawing power limit and
simultaneously the FIM limit should be input into the system by the RCAD to enable
Operations to transfer the outstanding from PAD to FIM.
In cases where marine insurance does not cover transit insurance, separate transit
insurance in addition to port to port insurance should be obtained.
Customers will be required to maintain sufficient funds in their accounts with the bank
for issuance of a pay order/cashiers cheque or otherwise provide a pay order/cashiers
cheque for payment of custom duty and other charges, so that C&F Agent can clear
goods and hand over the consignment to Banks Mucaddam. RCAD will nominate
mucaddam in consultation with Head RCAD North/South (alternatively in consultation
with Country Head CAD) for pledge of stock and TPC will coordinate with Mucaddam for
pledge.
In cases where FIM is booked under sight LC and it has to be retired by banks own
approved facilities (FE-25 or PKR) of the client, RCAD will appoint mucaddam
simultaneously with the C&F agent with clear instructions to mucaddam to take control
of goods from the port once handed over by C&F agent. RCAD will provide details of
such goods taken up by mucaddam from port and once it reaches the customers site.

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2.2.2 Term Credit Facilities


Following procedure shall be followed while extending long term loan/financing facilities;
2.2.2.1 Commercial and Industrial Loans:
Financial Forecasts
1. All proposals for long term loans or financial guarantees, SBLC and/or usance letters
of credit/deferred payment with tenor for more than one year must be accompanied
by financial projections including balance sheets, profit and loss, and cash
generation statements with assumptions covering the tenor of the facility. In addition
to financial forecasts, term loan proposals will also require project feasibility; and
2. Financial Projections are not required for contingent exposures covering bid,
performance, and advance payment bonds with tenors of three years. However, if
the tenor exceeds three years, projections must be obtained.
Exceptions (for I and II), if any, shall be approved by the GE-R&CP.
Default Clause
The loan agreement shall contain the following default clauses in addition to general
default clauses and default of any of these clauses would cause prompt remedial action
or loan may be recalled;
1. Borrowers failure to service two consecutive installments of principal or mark-up on
due dates as per the terms of the credit approval;
2. If any information statement, certificate, or representation given by the borrower
proves incorrect or untrue;
3. If the borrower becomes insolvent or bankrupt or consents to appoint liquidator or
receiver;
4. If any bankruptcy, liquidation, or recovery proceedings are initiated against the
borrower by any bank; and
5. If the borrower fails to fulfill any covenant, term, or condition of the Loan Agreement.
Non adherence of any of the above clauses would trigger prompt remedial action or
recall of loan. Exceptions, if any, (for a and e only) shall require approval of relevant
Credit Committee (CC).
Standard Covenants
All funded term credit facilities must be documented through an appropriate loan
agreement drawn up and reviewed by the Banks legal counsel. Such loan agreements
must include the following provisions:

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Borrowers will furnish the Bank with audited financials within maximum 180 days
after close of financial year;
A material adverse change clause among the conditions precedent;
A definite date for the termination of the availability period;
Unless waived by the concerned Group Executive, commitment fee should be
included as a part of the compensation;
Borrower will maintain leverage ratio as prescribed by SBP and current ratio as per
banks policy;
Bank will arrange valuation of assets by a UBL enlisted valuator, nominated by
RCAD (in case of syndicated loan, valuation to be carried out by the valuators
nominated by the lead bank);
Borrower will maintain its project assets adequately insured against all standard
risks;
Borrower will promptly pay all obligations to Bank and other agencies, such as
government taxes, dues etc.;
Borrower will not create lien, mortgage, or encumbrance over its assets without
written consent of Bank;
Borrower will not enter into any merger or amalgamation or sell/lease its assets
other than in the ordinary course of business without the written consent of Bank;
Borrower will not change its legal status, majority ownership, or management
structure without written consent of Bank;
Borrower will not guarantee, endorse, or otherwise become surety for others, except
the usual negotiable instruments in the normal course of its business;
Borrower will not make any loan to or invest in subsidiaries except in the normal
course of its business; and
Borrower will not declare any dividend if financial covenants are not met without
written consent of the bank. Exceptions may be provided for syndicated loans.

In case of syndicated loans, exceptions, if any, shall require approval of relevant CC


including Head CRM/GE-R&CP.
Documentation Review
Documents required under the provisions of term loan agreement, such as Board
Resolutions, Powers of Attorney, Memorandum and Articles of Association etc., must be
reviewed by legal counsel that is engaged for the preparation of term loan agreement
with a view to determining their validity and protective value.
General Conditions
Banks commitment must contain a specific maximum monetary liability.
Banks commitment must contain a specific, legally defensible expiry date.

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Other Rules Governing Term Loans/Facilities


Under these rules, any material change in the terms and conditions or covenants of a
term credit as originally approved must be referred to the original level of approval. Any
unused commitments, except as provided for under the rules for sub-allocation of credit
facilities, can only be utilized for the purpose originally approved, and cannot be
intended to accommodate other needs. Unused commitments no longer necessary for
the purpose originally approved must be cancelled.
2.2.2.2 Syndications
Syndication activities are divided into Primary (i.e. up to financial close) and Secondary
(i.e. post financial close) distribution.
2.2.2.2.1 Primary Distribution
All Syndication transactions shall be routed through the Investment Banking Group
(IBG). IBG will be responsible for:

Investment Banking Engagement Committee Approval (ECA);


Transaction structuring;
Primary distribution;
Transaction documentation, including liaison with transaction legal counsel;
Overall internal and external management of the transaction; and
Monitoring the risk for life of loan.

Corporate Banking Group (CBG)/International Group/Financial Institutions Group


(FIG)/IBG will be responsible for:

All credit related matters pertaining to a syndication;


Relationship management; and
Jointly monitoring the risk with IBG for the life of the loan.

CBG/International Group/FIG and IBG will be jointly responsible for term sheet/mandate
negotiation with the client. In case of restructuring of syndicated facilities, IBG and
CBG/International Group/FIG will jointly handle the arrangement.
When pitching for a Syndication mandate or considering participation in a Syndicate, the
Bank shall endeavor to maximize non-interest earnings (including fee income) from the
transaction.
Syndications that are led by the Bank shall be jointly handled by IBG and
CBG/International Group. FIs will be involved whenever required. In such cases, CBG
--- Page 16 of 107 ---

participates and IBG arranges the remaining amount of syndicate through additional
contribution from other financial institutions.
Syndications that are led and arranged by other financial institutions in which UBL
participates as a minor or major participant, shall be jointly handled by IBG and
CBG/International Group/FIG.
A complete SCA is required to be prepared and submitted for approval covering the
term loan requirements as mentioned in the Policy. The SCA will be prepared by
CBG/International Group/FIG and concurrence of Group Head IBG will also be required
where the bank is the syndicate leader/arranger.
2.2.2.2.2 Secondary Distribution
Where Syndication involves sell-down of all or part of the Banks exposure post financial
close, the following procedure shall apply:
1. The terms of a sell-down, including the amount, pricing and timing, shall be jointly
agreed between CBG/International Group/FIG and IBG;
2. Subsequently CBG/FIG shall formally request IBG to affect a sell-down after
obtaining the prior endorsement of the CC including Head CRM/Head Credit
International/GE-R&CP;
3. The sell-down request, once provided to IBG, shall be considered irrevocable.
Exceptions, if any, to be approved by the CC including Head CRM/Head Credit
International/GE-R&CP; and
4. IBG shall endeavor to achieve the subject sell-down as per approval requirements.
2.2.3 Project Finance
Procedure for Approval
All Project Finance transactions shall be routed through IBG.
1. IBG shall be solely responsible for transaction management up to first drawdown this encompasses all aspects of the deal including structuring, modeling,
documentation, coordination amongst internal and external stakeholders (including
Trade and Treasury), liaison with regulators, and contact/negotiation with Project
personnel. To ensure maximum efficiency of resources, IBG may selectively request
CBG relationship/administrative support during this process;
2. IBG shall be solely responsible for:
a) Developing and writing the SCA;
b) Elevating it through the risk management chain;
c) Obtaining any waivers and/or alterations that may be required to perfect the
credit prior to facility effectiveness;
3. The credit package will be signed off by both IBG and CBG;
--- Page 17 of 107 ---

4. Direct CBG involvement in transaction management would begin when the project
finance principal reaches 50% outstanding. First drawdown and further drawdowns
will be managed by IBG and CBG will be informed. Thereafter direct IBG
involvement would decline progressively with each subsequent repayment;
5. Ownership and primary responsibility for account administration and relationship
management shall pass on to CBG immediately after outstanding loan amount falls
to 50%. This also implies that all decision making in connection with the facility and
the relationship shall also be transferred to the asset writing team. CBG will be
designated as the primary point of contact vis--vis the Facility Agent and would
attend syndicate meetings (IBG may accompany if required), respond to facility
correspondence, and take charge of all credit related matters; and
6. From that point forwards, IBG will act solely in an advisory capacity but will
nonetheless continue to independently monitor project progress. In any event, IBG
support would remain committed and available as and when required by CBG.
The bank shall ensure that guidelines on project financing/infrastructure project
financing issued by SBP are adhered to.
2.2.4 Guarantees (Bonds)
Primarily, guarantees would be issued in accordance with SBP guidelines. For the
purpose of issuance of guarantee, Bank will ensure that the following features are
included in the text of the guarantee:

The guarantee must be issued as per approved text and formats by in house legal
counsel or vetted by a counsel nominated by legal division;
The guarantee must be for a clear, well-defined purpose and for a specific amount
and period and shall contain claim lodgment date;
The text of the guarantee will have a reference to the underlying contract agreement
stipulating the Bid or Performance Bond or Advance Payment Guarantee etc. as the
rationale for issuing the guarantee;
Payment under the guarantee will be made upon beneficiarys request or upon
presentation of an agreed document (viz statement of claim) or set of documents
along with guarantee in original, if claim is lodged within validity of the guarantee;
The guarantee shall state the maximum amount of the Banks commitment in clear
terms both in figures and in words; and
The guarantee must have a specific expiry date, and all claims must be lodged
before the expiry date.

2.2.4.1 Guidelines

Necessary credit approval as per Banks standard practice and procedures must be
obtained prior to issuance of any bond or guarantee;

--- Page 18 of 107 ---

The customer on whose behalf the guarantee is being issued must agree to and sign
the text of the guarantee concurrently with the signing of a counter guarantee. Such
counter guarantees shall include a request for the issuance of guarantee as well as
an irrevocable commitment from the customer to reimburse the Bank on demand;
Stipulated margins and collaterals will be realized upfront and applicable
commission will also be recorded, preferably upfront, or as approved by the relevant
CC;
A valid DAC issued by the RCAD must be in place prior to the issuance of any
bond/guarantee; and
RCAD will monitor expired guarantees, with a view to obtain guarantees back after
expiry and decontrol the liability as per banks policy.

2.2.4.2 Execution of Guarantees/Bonds


While executing a guarantee following aspects will be considered:
1. The terms and conditions of the guarantee must be examined carefully to determine
the:

Type of guarantee;
Unusual conditions which could create unforeseen circumstances;
Extent of Banks obligation; and
Financial liability under the guarantee.

2. After the guarantee has been issued, a copy of the same will be attached to the
counter guarantee executed by the customer along with a draft of the guarantee
signed by the customer for record. Standard text of LGs attached (Annexure II).
2.2.4.3 Booking of Liability against Counter Guarantee of a bank/ Financial
Institution:
Sometimes business units extend credit facilities to their customers and/or issue
guarantees/bonds on the strength of a Counter Guarantee issued by a bank or other
Financial Institution having Financial Institutions Risk Management Unit (FIRMU)
approved Guarantor lines.
Prior to undertaking any such transaction, the procedural guidelines as stated below are
required to be followed by respective business units/TPC/RCADs;
Procedural Guidelines
1. A guarantor line will be established by FIG in respect of a Bank/Financial Institution,
counter guaranteeing the transaction; and
2. The liability will be controlled as under:--- Page 19 of 107 ---

In case where a guarantee/bond is required to be issued on behalf of a local customer,


on the strength of a Counter Guarantee of a bank/DFI, the respective business group
will get an appropriate credit line approved from the relevant CC and guarantor line
approved from FIRMU. Liability will be booked in the name of the customer.
In case where guarantee/bond is required to be issued on behalf of a Foreign
Customer/Supplier/Contractor etc. on the strength of a Counter Guarantee of a
Bank/DFI, the establishment of line will not be required. In such cases, the liability will
be booked in the name of FIRMU approved Foreign Bank, counter guaranteeing the
transaction.
In both cases, a Disbursement Authorization Certificate will be issued by the RCAD to
cover the transaction.
Decontrol of Contra Liability
Prudent banking requires reversal of contra liability relating to a Letter of Guarantee as
soon as feasible after its expiry date mentioned in the guarantee. As per legal advice if
an instrument clearly defines its expiry date and no claim has been received during its
validity, the guarantee is deemed to be expired on the due date and the right of the
beneficiary to make a fresh claim under the guarantee ceases to operate unless the
beneficiary can prove that the claim was lodged before the expiry date.
However, as per practice, the business units do not reverse the liability unless the
original instrument is received back duly cancelled, or a letter of disclaimer is received
from the beneficiary. This results in an unnecessary accumulation of contingent liabilities
as the beneficiaries fail to return the original guarantee after its expiry date, or
sometimes the original guarantee is lost.
To reduce unnecessary outstanding of contingent liabilities across the country the task
for reversal of contra liabilities will be undertaken in two phases.
Henceforth the Branch/Business unit Operation/TPC will follow the below mentioned
guidelines for reversal of the contra liabilities relating to all expired LGs:
PHASE 1
Review each expired LG (Including those favoring Federal/Provincial Government
Departments) to ascertain that:

It contains a specific expiry date;


Text of the Guarantee does not have the automatic renewal clause; and
No claim has been received during its validity period, in other words the period
applicable before the expiry date.
--- Page 20 of 107 ---

PHASE 2
After having completed the above exercise and for the purpose of settlement of each
case following action to be undertaken:

A formal letter to be sent to the beneficiary stating, inter alia, that no claim has been
lodged with the Bank by the beneficiary in terms of the guarantee during its validity
period and that the guarantee has expired and the Bank stands released and
discharged of any liability under the guarantee, hence, return the original letter of
guarantee. This letter should be sent by registered post or by courier service;
Follow up with two reminders on weekly basis to the customer and one reminder to
beneficiary. (Annexure III - reminder I and II, Annexure IV-Final reminder); and
The customer is also required to be notified in writing (through registered post) that
the guarantee has expired, retrieve the original guarantee duly cancelled from the
beneficiary and surrender it to the Bank. (Annexure V)

In case where the original LG is surrendered:

Cancel the original LG by marking CANCELLED within 2 parallel lines on the face
of the letter of guarantee;
Reverse contra liabilities; and
Refund margin, if retained, and release the securities, obtained at the time of
issuance of L/G after obtaining approval from the relevant CC.

In case where no response is received from the customer/beneficiary:

Transfer the contra liability and park it in the expired LG by reducing its value to
Rupee One after a period of 30 days from the date of the final reminder letter sent by
registered post and courier service;
Refund the margin, if retained and release the securities after obtaining an indemnity
drafted by the Chief Legal Counsel (CLC) from the customer (Annexure VI);
Send 6 reminder letters to the customer on quarterly basis for retrieval of expired LG
(Annexure VII);
If the original LG is surrendered:
Cancel the original LG by marking CANCELLED within 2 parallel lines on
the face of the letter of guarantee;
Reverse the contra liability booked under expired guarantee GL with Rupee
One and close the file; and
Refund margin, if retained, and release the securities, obtained at the time of
issuance of L/G after obtaining approval from the relevant CC.
If the original LG is not surrendered the contra liability booked under expired
guarantee GL with Rupee One may be reversed after a period of 30 days from the
date of 6th reminder letter sent by registered post and courier service and close the
file.
--- Page 21 of 107 ---

Where LG is Open Ended (without expiry date):

No action will be taken to reverse the liabilities unless original LG is surrendered or


beneficiary issues a Letter of disclaimer stating that they have no claim whatsoever
under the guarantee and beneficiary has no objection to reverse the contra liability;
Upon receipt of the original LG:
Cancel the original instrument by marking CANCELLED within 2 parallel
lines on the face of the LG;
Reverse the contra liability either upon receipt of the original LG or receipt of
letter of disclaimer from the beneficiary; and
Refund margin, if retained, and release the securities, obtained at the time of
issuance of L/G after obtaining approval from the relevant CC.

All securities including margin, securing the LG shall be released only after obtaining
the approval of the relevant CC.
2.2.5 Documentary Letters of Credit
2.2.5.1 Third Party Documentary Letters of Credit
Documentary Letters of Credit established on behalf of third parties (parties other than
the obligor/customer) represent an additional element of risk. Therefore, if imports on
behalf of third parties are required, line descriptions should clearly state accordingly.
Furthermore, the customer should confirm that the L/C is issued at customers risk and
liability. Customer will also sign on L/C application as guarantor.
Compliance with relevant Prudential Regulations must be ensured for 3 rd party L/Cs.
2.2.5.2 Inland L/Cs
Trust receipt to be obtained at the time of opening sight/usance inland L/Cs.
2.2.5.3 Third Port/Country Imports
If imports into third countries are required, line descriptions should clearly state
port/country of destination, items to be imported/procured etc.
Conditions

100% cash margin will be required for Import of perishable items and chemicals. For
relaxation of margin requirement specific approval of CC will be required;
LC for import of banned items will not be established;
It will be ensured that specific approvals are obtained for third party and third
port/country L/Cs from the relevant CC;
--- Page 22 of 107 ---

Trust receipt shall be obtained to protect banks interest;


Margin requirements shall be determined by the bank taking into account the risk
profile of the customer;
Business Units/CC must ensure:
Adherence to margin restrictions stipulated by SBP/Central Banks at
Overseas Centres.
Demand and turnover of the product/commodity in the market;
Durability,
salability
and
estimated
realizable
value
of
merchandise/commodity being imported;
Custom duties and import tax structure;
Financial strength of the customer;
Banks experience of dealings with the customer; and
Profitability of the relationship.

2.2.5.4 Shipping Guarantees


Customer Documentation
In all cases involving shipping guarantees, the customer will sign standard shipping
guarantee application that includes an irrevocable undertaking that the related shipping
documents, when received, will be accepted unconditionally, regardless of
discrepancies.
Missing Invoices
In case of documentary collections when the invoices are not available with the Bank,
the value of merchandise for issuance of shipping guarantees against cash margin/cash
collateral as per policy will be established on the basis of supporting documents relating
to price along with an undertaking to indemnify the bank in case of any fluctuation in
price resulting in a shortfall in value. In such cases, specific approval of relevant CC will
be required.
Open Ended
The requirement for a fixed expiry date will be considered waived in all cases since
carriers and Customs Department do not accept shipping guarantees with a stated
expiration date.
Decontrol
Shipping guarantees can be decontrolled after settlement of documents in the following
scenarios:
Return of original shipping guarantee;

--- Page 23 of 107 ---

When original Bill of Lading (B/L) is with the bank, and provided that two follow-up
reminders letters for return of original shipping guarantee have been sent to the
importer by registered port and courier service with an interval of 2 weeks each; and
The original Bill of Lading should be kept in the file to serve as evidence in the event
the shipping agent inquire or call on the shipping guarantee. CC approval for the
amount of the transaction should be taken.

2.2.6 Financing Against Shares (FAS)


To manage credit risk on account of FAS facility, Market and Treasury Risk will issue list
of approved shares. It will be responsibility of Market and Treasury Risk to ensure
market liquidity for sell off in case margin calls are not met.
Disbursements against the approved lines are subject to availability of Drawing Power
(DP) which is equivalent to the market value of the pledged securities plus margin as
per approval. If the drawing power falls below the outstanding amount, Treasury Middle
Office (TMO) notifies DP shortfall to the respective RM/Business Head and RCAD.
If deterioration in market value of the pledged securities continues and the margin falls
below 25%, a margin call is generated to the customer. Customer is required to top up
the security in order to cope up with the margin call and bring outstanding exposure at
least equivalent to DP. If the customer fails to comply with the banks instructions after
three calls, the respective business unit is authorized to offload the security without
giving any further notice to the customer within three working days.
If the margin held falls below 20% and the customer does not replenish the shortfall
after three margin calls bank will sell the shares of the customer to reduce the
outstanding after obtaining approval from GE- Treasury & Capital Markets.
Criteria for extension of Credit Facilities against Shares is detailed below:
1. Shares accepted as security must be of a public limited company, quoted on the
local Stock Exchanges and approved by Market and Treasury Risk;
2. Shares should be widely held by the public and well traded in the stock exchanges.
This will facilitate easy disposal should the need arise;
3. Share should not be owned by the minors;
4. Shares should be in marketable lots. If such is not the case, a Power of Attorney is
to be obtained from the owner(s) to enable the bank to split shares into marketable
lots;
5. Pledge of shares should be accepted ONLY through Central Depository System
maintained by Central Depository Company of Pakistan Limited (CDC);
6. Financing against shares will be allowed only if all regulatory requirements stipulated
by the SBP/Central Banks at Overseas Centers are met; and

--- Page 24 of 107 ---

7. The value of pledged shares shall be monitored regularly and marked to market. In
order to better manage risk, the Treasury Middle Office (TMO) will monitor the
positions created by Margin Financing or Lending against Shares. All proposals
pertaining to Margin Financing or lending against shares require concurrence of
Head TMO, who will monitor the Banks exposure and keep it in line with SBPs
directives and regulations for financing against shares.
Exceptions to the above instructions will be approved by G.E. Risk and Credit Policy on
the recommendation of respective Business Group Executive.
2.2.6.1 Documentation
1. Pledge Agreement to create lien on the shares;
2. The shares shall be kept in a CDC account with Banks lien marked on it;
3. In case of lending to a partnership firm whose liability is unlimited by law, joint and
several guarantees must be obtained from each partner. The aim is to ensure each
partners awareness of his or her personal liability towards the full debt;
4. Board Resolution of the company authorizing specific person(s) to pledge approved
shares/securities with the bank (pledge of third party shares). A letter of lien with the
rights to set off will also be obtained; and
5. In addition to other documents, Agreement for Sale & Buy Back of marketable
securities (IB 1026) shall be obtained from the borrower.
2.2.7 Islamic Banking Products
The bank shall follow documentation and related formalities as required by sharia
advisor and verified by the banks legal counsel.
2.3 Facilities to be taken Over/Swapped from Other Banks/FIs
Whenever credit facilities are being taken over/swapped from another bank/FI, the
following guidelines are to be followed:
1. Prior to making swap arrangements, RM/Team Leader (TL)/Unit Head/Regional
Corporate Head (RCH)/Regional Head Commercial Assets (RHCA)/HRA should
complete the SCA package and obtain necessary approvals from the CC. The
RM/TL/RHCA/RCH should mention details of the documents to be deferred;
2. Swap arrangements would be completed through CLC pre-approved legal counsel,
having experience and expertise in corporate affairs, revenue records verification,
and other related matters;
3. Banks Mucaddam shall verify the quantity and quality of pledged stocks and provide
a provisional stock report. In case of hypothecated stocks, a report from an outsourced company or satisfaction report from the TL/RHCA/RCH is to be obtained;
4. After applying prescribed margin on the value of pledged goods reported in the
provisional stocks report, cashiers cheque will be exchanged against the physical
delivery of goods to the banks Mucaddam simultaneously and the required
--- Page 25 of 107 ---

documents as per approval obtained by RM/TL/RCH/RHCA/RCH/HRA will be lodged


with RCAD;
5. An undertaking is to be obtained from other/counterparty bank(s) regarding swap of
facilities and it shall be drafted by legal counsel covering in detail, besides other
aspects of the deal, specifically the following:

The customers Bank shall hand over to UBL all security documents and/or
title deeds and pledged stocks held against the financing being swapped
simultaneously in exchange for banks cashier cheque in full and final
settlement of all liabilities of the customer being swapped as per
arrangements and no claim shall be entertained in the future.
A No Objection Certificate (NOC) regarding vacation of all
charges/redemption is to be signed by the customers bank and handed over
to UBL on the same day.

Exceptions, if any, shall be approved by Head CRM.


6. CLC/ approved Legal retainer shall draft undertaking to be obtained from the
customer regarding completion of all legal documentation formalities;
7. Before proceeding for swap, latest search report shall be obtained from Securities &
Exchange Commission of Pakistan (SECP) to ascertain any outstanding charges
against the company;
8. Simultaneous execution of all charge documents and Personal Guarantee(s), where
required along with Personal Net Worth statement shall be ensured;
9. As a matter of policy, deferrals/waivers relating to swap transactions will be
discouraged. Any deferral/waiver of documents, if required, will be approved on case
to case basis by Head CRM;
10. Written Bank checking of all banks of customers and market checking is essentially
required;

--- Page 26 of 107 ---

CHAPTER 3
CREDIT INITIATION
Credit initiation involves an in-depth analysis of the customer based on key financial,
operational and organizational information and thus acts as a basis for appropriate risk
assessment. Documentary requirements and details of requirements of Credit
Application Package along with Risk Rating Systems, has been defined to aid the
initiation process
3.1 Standard Credit Application (SCA)
Currently two SCA packages exist. The Standard Credit Application package is used for
credits above Rs. 75 million. The Simplified Credit Application Package is used for
credits upto Rs. 75 million. Both packages contain several documents which are listed
in the subsequent sections.
3.1.1 SCA for Credits above Rs. 75 M
The Standard Credit Application package (Annexure VIII) for initial extensions of credit
and for annual reviews is expected to contain a comprehensive appraisal for the
relationship. The application should be accompanied by a set of supporting documents,
collectively described as the SCA Package, comprising the following:
1.
2.
3.
4.
5.
6.
7.
8.
9.

Executive Summary;
Standard Credit Application;
Facility Appendix;
Basic Information Report;
Comparative position of financial statements;
ORR sheet;
Facility Risk Rating (FRR);
Risk Acceptance Criteria (RAC), where applicable;
Borrowers Basic Fact Sheet;
--- Page 27 of 107 ---

10. CIB report on the customer and group companies, where applicable;
11. BRR report, where available;
12. SBP observation/annexure, if any;
13. RCADs observations sheet, if any;
14. Valuation Report and Desktop Valuation Report where applicable;
15. Audited financial statements (three years auditor band to be mentioned);
16. Latest management accounts of public limited company and where required;
17. Customer Profitability sheet;
18. Project feasibility, financial projections along with assumptions for long term loans;
19. Call report and site visit report;
20. Prudential Regulations Check List;
21. Bank and Market Checkings;
22. Memorandum & Articles of Association (for new customers);
23. Letter of undertaking for proper utilization of facility;
24. Central Liability Report;
25. Stock Report, where applicable; and
26. Stock Inspection Report (Hypo and Pledge), where applicable.
3.1.2 Documents required for credits upto Rs. 75 M
The Simplified Credit Application package for credits below Rs. 75Mn (Annexure IX)
comprises of the following documents.
1.
2.
3.
4.
5.
6.
7.
8.

Simplified Credit Application;


Basic Information Report;
Facility Appendix;
Bank Checking;
Market Checking by approved outsourced agency;
CIB report on the customer and group companies, where applicable;
Borrower Basic Fact Sheet;
Audited Financial Statements (three years auditor band to be mentioned) (preferred
for cases where SBP allows exemption);
9. Latest management accounts, where required;
10. ORR Sheet;
11. Facility Risk Rating (FRR);
12. Risk Acceptance Criteria, where applicable;
13. Customer profitability sheet;
14. Comparative position of financial statements;
15. Call Report/Site Visit Report;
16. Project feasibility, financial projections along with assumptions for long term loans,
etc;
17. Memorandum & Articles of Association (for new customers);
18. BRR report, where available;
19. SBP observation/ annexure, if any;
--- Page 28 of 107 ---

20. RCAD observations sheet, if any;


21. Valuation Report and Desktop Report, where applicable;
22. Central Liability Report;
23. Stock Report, where required;
24. Stock Inspection Report (Hypo and Pledge), where required;
25. Prudential Regulations check list; and
26. Letter of undertaking for proper utilization of facility.
After implementation of Loan Origination System (LOS) all CBG SCAs are required to
be routed and approved on LOS. While all RB cases will gradually be taken on LOS
system due to long transition period and large number of customers.
Exceptions to the Standard Credit Application
1. Applications submitted for interim reviews need not be accompanied by all
documents listed above, except to the extent compatible with the purpose of the
presentation and mandatory requirements. Instead, interim reviews should refer
logically to the approved SCA already in place and, if necessary, update the
information. Aside from this, comments can be limited to the transaction for which
approval is being sought.
2. Applications having only facilities that are fully covered by Security Class 1 need not
be accompanied by a full package unless it is mandatory or required by the
approving authority. However, care should be taken to ensure that relevant
information is properly recorded.
3. Excess over limit cases upto 10% of Total approved facilities can be submitted on
memo/email with proper purpose, rationale and justification.
Presentation
Annexure VIII and IX include detailed guideline to present the analysis in accordance
with the complexity of the transaction, the customers financial position, and the degree
of risk involved. Presentations are expected to be complete, and no essential elements
are to be omitted. Current Ratio shall be calculated as per Annexure X.
The Credit Proposal Package for the FIRMU is comprised of a Credit Application face
and a data sheet that originates from Bankscope (a specialized software). The format of
the Credit Proposal package for FIRMU is attached (see Annexure XI).
3.2 Responsibility
Business Units will be responsible for credit initiation and for accuracy of information in
the SCA package. Preparation of the SCA package will involve the following broad
steps:1. Establishing and maintaining contacts with clients;
--- Page 29 of 107 ---

2.
3.
4.
5.
6.
7.

Receiving credit requests from clients;


Collecting required information from applicants and independent sources;
Analyzing financial and market position of applicants;
Assessing security and support being offered;
Negotiating appropriate pricing, and terms and conditions; and
Incorporating required information into respective forms.

The responsibilities of CAD regarding credit initiation are outlined below:

Receive Simplified/Standard Credit Application through LOS. The date of receipt at


RCAD will be automatically tagged in LOS and can be checked for monitoring
purpose;
Review Standard Credit Application. Verify Standard Line Description, Security
Description and compliance with Prudential Regulations and Credit Policy and Credit
Manual; and
Ensure that any errors, omissions, and/or deviations from the above are highlighted
and returned to Relationship Management for correction and/or amendment. The
queries in this regard can be raised through emails or Loan Notes feature available
in LOS. In any case RCAD queries and Business response should be made integral
part of Loan Application.

RCAD to:

In case of electronic routing, a unique credit application number is assigned by LOS


to each credit applications. Whereas in case of manual routing RCAD will assign a
routing number (log in routing register), and ensure that all relevant documents are
attached, e.g. BIR, BBFS, CIB report, Bank/Market Checking, Financials, etc, and
CAD Issues Sheet (if any);
Initial all pages of facility appendix;
Check BBFS and ensure that all fields are filed by RCAD;
The credit committee will be selected by LOS automatically based on the certain
parameters to be filled by the respective Relationship Manager. RCAD is required to
review data fed by the RM in those parameters and identify if any parameter is left
unfilled by the RM. (Select relevant Risk Manager/Senior Risk Manager or higher
level Tier as per customer/group Risk Weighted Exposure/Security Classes
(Annexure XII) for the manual routing);
In case of manual routing, prepare and sign routing memo, which is to be attached
to the completed SCA Package;
Execute Pre-Approval Checklist ensuring that all documents are attached with the
loan application as required by UBL Credit Policy and SBP Prudential Regulations;
Circulate package to the relevant CC.

Credit Risk Management (CRM), CBG, RB and FIRMU shall formulate a Service Level
Agreement where TAT should be defined for credit proposals.
--- Page 30 of 107 ---

3.3 Lines and Special Transactions (One Offs)


3.3.1 Sub-Allocation/Re-Allocation of Approved Credit Facilities
1. The unutilized portion can be sub-allocated/re-allocated to establish a new facility or
to increase another existing facility under the following conditions as per the format
attached (Annexure XIII):

The Disbursement Authorization Certificate (DAC) will be issued after all


documentation formalities for the facility to be sub-allocated have been
completed.
All regulatory requirements that apply to the sub-allocated line have been met.
Risk of new/ increased facility is equal to or lower than the risk of the facility prior
to the change i.e. from Fund Based to Non-Fund Based.
Tenor of the new or increased facility is equal to or shorter than the tenor of the
previously approved facility.
The facilities are for any related borrower of equivalent risk within the same
customer group relationship, provided cross company guarantees are obtained.
Sub-allocation may also be allowed to associated concerns of sole proprietorship
and partnership firms if required criteria are met. For sub-allocation to any group
concern comprised of Limited Companies, it will be ensured that the particular
group concern complies with all applicable prudential regulations for the level of
exposure being sub-allocated.
There is no deterioration in security/support documentation already held.
Additional security/support documentation may be obtained before utilization of
the sub-allocated line, if required.

SCHEDULE OF FACILITIES THAT MAY BE SUB-ALLOCATED BASED ON ABOVE


S.NO.

FROM

TO

1.

NICF

2.

L/C-DA

3.
Financial
Institutions

Funded lines as specified


in Credit Policy.

ERF I, II, FAPC, FBP-A/C


L/C Sight, LC-DA
L/G (with a tenor not more than one
year)
L/C Sight
L/G (with a tenor not more than 6
months)
Non-funded lines as specified in
Credit Policy.

Non-Funded
Lines
(e.g.
STT,
guarantor line or custodian line or

--- Page 31 of 107 ---

intermediary line or vice


considered as equal risk

versa)

In addition to the above schedule unutilized portion of approved lines for NICF/ERF I-II,
FAPC and FBP-A can also be allocated for US Dollar Financing under FE 25.

3.4 Risk Rating Systems


3.4.1 Obligor Risk Ratings (ORRs)
The methodology for the evaluation of ORR is given below.
3.4.1.1 Methodology
The ORR is evaluated using the ORR Grid for Corporate, Commercial, SME, Individuals
and FIRMU (Annexure XIV, XV, XVI and XVII). The following guidelines may be used to
arrive at the numerical ORR for a particular borrower (further details for calculation of
Corporate/Commercial, SME & Individuals are provided in Annexure XVIII):
Step 1: Map the customers characteristics against the Rating Factors and allocate the
appropriate score to each characteristic.
Step 2: Make a sum total of all marked characteristics.
Step 3: Map the sum total of all factors to arrive at final ORR of the customer.
3.4.1.2 Level of Risk
ORR 1 - This highest rating is reserved for government institutions and a handful of
multinational and large institutional customers. Customers with this rating should have
unusually solid and stable profitability, liquidity, and debt coverage in the past and are
projected to continue this performance over the long term.
ORR 2 - Strong corporate/institutional customers, government institutions, or
multinationals with somewhat greater long term risk than Rating 1 customers, but still
supported by very stable operating and financial performance. Taking into account their
activities, ongoing viability, profitability, liquidity, solvency, and capacity to repay,
customers with this rating carry a very small degree of risk due to their notable stature,
stability, and longevity
ORR 3 - Customers demonstrate medium to long term operational and financial stability
but they may be somewhat more susceptible to cyclical trends or variability in earnings.
--- Page 32 of 107 ---

Their operating cash flow projections over the medium to long term adequately cover
both projected principal repayments and interest.
ORR 4 - Customers portray operational and financial stability over a three to five year
time horizon, but are more likely to be weakened by adverse business, financial or
economic conditions than customers with stronger ratings.
ORR 5 - Customers are reasonably sound and have some margin of protection in their
current performance, but may portray more erratic patterns as a result of competitive or
general economic pressures. Recent profits and operating cash flows provide moderate
comfort, and therefore interest and principal repayments are less well assured over a
medium to long term time horizon
ORR 6 - These customers face more uncertainty over future operating cash flows, and
are often under stronger competitive pressure. Their future over the next three to five
years, in both good and bad times, is less well safeguarded by operational and financial
performance, with smaller margins of protection on principal repayments and interest.
ORR 7-This category is termed as Watchlist. Customers have greater vulnerability to
default. While current projections show that they are able to support principal
repayments and interest, capacity or willingness to repay is likely to be impaired by
adverse business, financials or economic conditions.
These customers often show more erratic performance, and may have experienced
recent loss years. They may be perceived as fighting to maintain current levels of
profitability.
Customers which are watchlisted due to subjective or above factors and have delayed
payments by 16 to 29 days will fall in this category.
ORR 8 - This category is termed as Serious Watchlist. Customers have high
vulnerability to default. Current dealings reflect delay in interest payments. Future
payments might depend on continuity of positive prospects of the industry.
These customers often show more inconsistent performance in terms of profit margins
and mark-up payments in recent times.
Customers which are wathclisted due to subjective or above factors and have delayed
payments by 30 to 59 days will fall in this category.
ORR 9 - This category is also termed as Severe Watchlist. Customers with high
probability of default fall under this category. Current financial position of the customers
is weak. Even positive development of the business, financial and economic conditions
might not ensure its capability to meet its financial obligations.
Customers with delayed payments by 60 to 89 days might fall in this category.
--- Page 33 of 107 ---

ORR 10 - These customers clearly exhibit weaknesses, and depend on favorable


economic conditions to meet financial commitments. They have been experiencing
difficulties, which may threaten the safety of lending. Returning the business to
sustainable health without important changes in strategies or practices is difficult. If it is
highly likely that a breach of repayment arrangements will occur within a period of three
months, the requirements of ORR11 and 12 are to be strictly observed. Customers
under the Substandard category as defined under the SBPs Prudential Regulations (i.e.
where mark-up/interest or principal is overdue by 90 days or more from the due date)
would also fall under this risk rating.
ORR 11 - Customers with Credit Rating 11 are of very poor standing with little prospect
for improvement. Principal recovery will require rigorous remedial management.
Customers under the Doubtful category as defined under the SBPs Prudential
Regulations (i.e. where mark-up/interest or principal is overdue by 180 days or more
from the due date) would also fall under this risk rating.
ORR 12 - This risk rating clearly recognizes and measures assets impaired due to loss
of principal (which may be partial) as well as mark-up, thus justifying the provisioning for
the same. Customers under the Loss category as defined under the SBPs Prudential
Regulations (i.e. where mark-up/interest or principal is overdue by one year or more
from the due date) would also fall under this risk rating or trade bills (import/export) bills
or inland bills are not paid/adjusted within 180 days of the due date.
For International Credits classification policy defined in Credit Policy International shall
be followed.
3.4.1.3 Risk Rating vs. Classification
Risk Rating

Category Classification
Current
Watchlist
Serious Watchlist
Severe Watchlist
Substandard
Doubtful
Loss

1-6
7
8
9
10
11
12
3.4.1.4 Frequency of Reporting

CRM or CC must reassess the ORR whenever a review event (frequent overdues,
deferrals, material adverse change in the company or industry) occurs, and if
appropriate, the ORR must be revised/downgraded. The outcome of the review,
including details of major issues to resolve, should be recorded. Further, ORR should be
downgraded if the deferrals are outstanding for more than 1 year
--- Page 34 of 107 ---

Where there is a downward movement in an ORR, the relevant Business Unit and Risk
Manager will determine the required course of action, which may include issues to be
addressed with the customer.
Under normal circumstances, the following maximum review periods will apply for ORR:
ORR

Rating Review Frequency

1
2
3
4
5
6
7
8
9
10
11
12

Annually
Annually
Annually
Annually
Annually
Annually
Semi-Annually
Semi-Annually
Semi-Annually
Semi-Annually
Semi-Annually
Annually

3.5 Security Classes (Annexure XII)


The following security classes have been identified which would be subject to review
with the changing market dynamics:
Class I:

Deposit (Rupee/FCY) with UBL


US$ Bonds, Federal Investment Bond, Treasury Bill, National Saving Certificate,
discharged and under lien, and Government guarantee

Class II:

Certificate Of Investment, Deposit, guarantee of A rated FIRMU Approved - Global


Banks

Class III:

Certificate Of Investment, Deposit, guarantee of FIRMU Approved - local Banks (Or


other than class II)

Class IV:
--- Page 35 of 107 ---

Certificate Of Investment, Deposit, guarantee of FIRMU Approved - DFIs/NBFCs


Shares/TFCs/Certificates of Mutual Fund
NIT Units

Class V:

Token/Registered Mortgage
Pledge of goods financed by UBL
Lien on import documents under Sight LCs.

Class VI:

Equitable Mortgage
Hypothecation of stocks and receivables
Hypothecation over plant and machinery
Others (Trust Receipts etc.)

(3RD party security would be reflected by adding a prefix 'T')


Security classes should be mentioned in SCA.
A risk-scoring model is prepared which would generate risk weighted exposure limits
(Annexure XII) as a product of facility amount and security weight. The proposed criteria
would be applicable to both Simplified and Standard Credit Applications. The RM would
be responsible for matching facilities with their respective security classes and
determining the weighted risk score. RCAD would then be responsible to route the SCA
to the relevant CC based on the risk weighted score instead of the proposed exposure
amount.
For example, in Appendix B of Annexure XII, the risk weighted exposure amount comes
to Rs. 476Mn whereas the exposure proposed is of Rs. 700Mn. With this method the
CC for the risk weighted approval level covering Rs. 476Mn will be chosen by the RCAD
for routing SCA, and not the CC for Rs. 700Mn.
MIS would be developed to reflect all security fields for necessary reporting and
monitoring.
3.6 Facility Risk Rating Model (FRR)
In line with efficient risk management practice, FRR Model has been formulated for
implementation. FRR comprises of two components; risk associated with the type of
collateral and facility itself. The model (Annexure XIX A) has been devised to meet
various types of transactions comprising of single facility to multiple facility structure.
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Usually customers avail multiple facilities, this model also enables us to calculate facility
wise FRR as well as aggregate FRR of the customer.
The purpose of this model is to outline a criterion that truly reflects expected loss of
exposure after default of each facility as well as of aggregate facilities. It is aimed to
have lending risks properly identified to aid risk approving process and reflect true credit
quality. Calculation methodology for FRR Model is defined in Annexure XIX.

CHAPTER 4
CREDIT APPROVAL
The credit approval requires a framework within which a reviewer can judge the quality
of credit proposed. All Credit Officers should make themselves thoroughly familiar with
the credit process, industry dynamics etc.
4.1 Expected Attributes of Risk Managers/Senior Risk Managers
The Risk Managers must have sound capabilities including:

Adequate knowledge of credit analysis, negotiation, structuring and maintenance,


The ability to communicate clearly, in speech and in writing,
Sound knowledge of banks Credit Policy, Credit Manual and the ability to apply this
knowledge to specific situations,
Integrity, honesty, sound judgment, common sense, and attention to detail,
The ability to think and act independently and
The sense to know when to ask for guidance from more experienced officers.
Clearance on any external exams/certifications as required by the Bank from time to
time (e.g.; OMEGA)

In addition to the above mentioned capabilities, Senior Risk Managers are required to
have:

Diverse experience in corporate and commercial lending


Appropriate credit training
Exposure to more than one geographic or business areas
Remedial management or workout experience and
An acceptable track record with respect to the performance of portfolios under
his/her responsibility.

They must also have a wide range of capabilities such as;


--- Page 37 of 107 ---

Advanced knowledge of banks credit culture, policy, procedures and the ability to
interpret and apply this knowledge to specific situations
Sensitivity to portfolio management strategies
Understanding of the business cycle and its effects on the portfolio and individual
credits
Ability to identify current risks and to anticipate potential risks
Negotiating ability, especially in difficult or troubled credits
Ability to work with customers, other banks, lawyers, etc.
Ability to consult and work with seniors, and subordinates in a team approach to any
situation
Ability to work under pressure and maintain a detached, independent perspective
Ability to apply knowledge and experience to actual credit situations and to
communicate assessments and opinions clearly and directly in speech and in writing
Ability to give strict attention to details.
Ability to coach and groom juniors and to show a commitment to their credit training
Balanced and independent judgment, with the ability to assess each credit proposal
on its merit, and to approve only when satisfied with all aspects of the credit
Decisiveness, including the ability to make unpopular decisions a reasonable
sense of when to say Yes and when to say No.

4.2 Appointment of Global Relationship Manager


There are some large business groups which spread their business operation in various
countries,
business
relationship
groups.
For
these
Customers,
GECBG/RB/International/GH-Islamic Banking will appoint Global Relationship Manager
(GRM) based on the following factors:

Accessibility
Strength of the relationship
Complexity of relationship
Amount of facilities extended

If there are disputes in assigning the GRM between business Groups, Head-CP will
finally decide the appointment of GRM.
4.2.1 Responsibility of Global Relationship Manager
To manage issues pertaining to all group accounts at various locations, deal with NPL
management and account monitoring. SCA of the group will require GRMs input and
signature in addition to respective RM(s).

--- Page 38 of 107 ---

SCA of all companies in the Group should be routed in one package if possible.
However, due to multiple geographies and different financial year end sates of the
Group companies, the SCA (interim or annual) for individual company can be routed
independently. In such cases, a copy of last approved Group SCA should be attached;
however sign off of GRM is essential.
4.3 Credit Approval Structure
Detailed Credit Approval Structure is defined in Annexure XX.

4.4 Markup parameters


RM should clearly write the frequency of mark-up collection from customer in the Facility
Appendix.
Credit Committee is required to approve the proposed frequency under following
guidelines:
1) All long term loans should have quarterly mark-up payment frequency linked with
3 month KIBOR. In case higher frequency is proposed specific CC approval is
required.
2) All short term facilities should have mark-up payment frequency by customer
linked with the tenor of KIBOR (for example, for 1 month KIBOR, monthly
payment of mark-up). Deviation will require specific CC approval.
3) All money market lines/deals should have repayment of Principal and mark-up
paid simultaneously by the customer at the maturity. Any exception will require
Head CRM approval.
4.5 Credit Approval Process
Credit proposals may be approved or declined by the approving authorities as per their
discretion. In order to streamline the approval process, final approving authorities are
required to justify the decisions taken in cases of approval/decline as per following
guidelines:
Approval
In case the credit proposed for annual review/interim review/NOC/Waiver/deviations/etc.
is approved, the approving authority signing last as per the Credit Approval Authority
Matrix other than Head CRM and above will be required to provide comments on key
aspects defined below:

Industry Characteristics favorable for the customer;


Obligors key risks; financial or nonfinancial;
Key risks and factors from which comfort is taken; and
--- Page 39 of 107 ---

Aspects to be monitored closely post approval etc.

These comments will form an integral part of SCA for further decision making.
Approved credits may be sent to BRMC/BOD for review as per the attached format
(Annexure XXI)
Decline
In case the credit is declined the authority signing last will provide the decline memo
while sending SCA/Credit Memo back to RCAD. Memo shall contain comments on:

Industry Characteristics unfavorable for the customer;


Obligors key risks which cannot be mitigated; financial or nonfinancial;
Aspects to be monitored closely post approval; and
Any other detrimental factor.

RCAD will route such decline memo along with the declined proposal to Head CRM
directly for review.
Expired Credits:
Any facility or credit, which is renewed by CC or its extension is in place, is not an
expired credit. The fresh security and control documentation may take time but such
facilities are not to be taken under the head of expired credits.
Under this circumstances where credit has been reviewed and approved by the CC,
RCAD will issue conditional DAC, with the memo to the respective branch, highlighting
the exception and advising that debit shall not be renewed without prior approval from
RCAD. For this, only the expiry of the credit must be changed and the new expiry of the
approval is to be inserted in the system and debit of limits shall remain blocked.
After completion of all necessary documentation etc. for clearing the exception, RCAD
will issue a complete DAC after which proper debit operations will be effective.
While RCADs will provide MIS of credits which are expired and will be expiring in the
coming months, it is joint responsibility of Business and CRM to have expired credits at
low levels, all the time.
4.6 Unusual Risks
Credit transactions representing unusual risks shall be treated as exceptions to the
Policy. A few examples of exceptions are:
1. Credit transactions with tenor longer than the stipulated period as per policy;
--- Page 40 of 107 ---

2. Term Loans having:


Bullet payment at maturity (loans exceeding one year tenor)
Grace period in excess of 2 years;
3. Lending for the purpose of providing equity to a business;
4. Issuance of open-ended guarantees and/or guarantees which may be extendible at
the sole option of the beneficiary and guarantees with auto-renewal clause (ARC);
and
5. Concentration of collateral with limited marketability.
Approval level:

a, b and c GE- R&CP


d and e one level higher than relevant CC.

Guarantees with ARC favoring Government and Government owned entities and top tier
multinationals at Overseas Centres shall be approved by relevant CC.
4.7 Politically Exposed Entities
All politically sensitive credits (fresh and renewals) as well as credits linked with persons
holding public offices shall be approved by GE-R&CP in addition to relevant CC
including Senior Risk Manager and Head CRM.
4.8 Revaluation
RCAD will submit a monthly report of credits booked (funded + non-funded) in foreign
currency to business and CRM showing the impact of exchange fluctuation i.e.
customers liability at prevailing exchange rate and the exchange rate at the time of
booking foreign currency loans.
If the depreciation of PKR is more than 5% from the booked rate of the loan, RM will ask
the customer to reduce his/her liability proportionately. An undertaking to cover
exchange fluctuations shall be obtained from the customer at the time of initiation.
Such loans, where the exchange rate has depreciated more than 5% and the liability is
not reduced by the customer promptly, will be watchlisted. Subsequently, business shall
submit a resolution plan after agreeing with the customer in 30days.
Overdue
It has been observed that TPC continues to issue LCs upto the limit approved in cases
where the import bills have been overdue for considerable period. This is against the
true spirit of due diligence to be conducted while lending to customers. Inability of the
customer to pay for current dues signals that the customers cash cycle is disturbed and
--- Page 41 of 107 ---

would face problems for further repayment of the loan. Additional lending to such
customers might lead to deterioration of the portfolio. Hence forth such cases will
require additional approval (as specified in Annexure XXII) for continuation of issuance
of LCs, FTRs and FIM (sub limits) for overdue accounts within the approved limits.

CHAPTER 5
DOCUMENTATION AND DISBURSEMENT
The disbursement of funds against any facility does not take place unless the
requirements pertaining to credit have been met. The responsibilities and guidelines for
completion and perfection of documentation along with minimum document
requirements are defined below.
5.1 Documentation Responsibilities
Prior to issuance of Disbursement authorization Certificate (DAC) and on receipt of
approved SCA, RCAD will ensure the following:

Routing number allotted to SCA to be logged off from routing register, routing sheet
to be filed (for LOS, this is system generated), and copy of SCA to be provided to
Documentation Officer in order to check/record credit approval and CCs covenants,
if any;
A copy of Credit Approval forwarded to MIS Officer for updating of database;
Upon written request from RM, RCAD to prepare IB documents, as per credit
approval, completely filled in, including date of execution, principal amount, rate of
markup, frequency of markup for each facility, expiry of IB Agreement, details of
collateral etc.;
Signature of the customer shall not be obtained on blank documents;
Provide copy of approval to RM, along with completed set of IB and related
documents;
Independently nominate/assign external vendor (Mucaddam, valuer, etc.) for
provision of various reports. Review and identify the discrepancies in the reports for
rectification by the vendor. All mucaddam and valuer vendors to be spread over
equally for customers;
--- Page 42 of 107 ---

Nominate approved legal counsel for review/vetting of legal documents (Non


Standard);
Review legal opinion provided by the legal counsel and draft of agreements,
undertaking, or any other legal and property document etc;
RM will be responsible for providing complete/executed legal documents as per
requirement of approved legal counsel;
Documents must be executed in the presence of RM(s)/bank officer(s)-attorney
holders; and
RCAD will ensure that any outstanding discrepancies/issues related to the
approval/legal opinion, BRR/Audit/Valuation Report, etc. are advised to RM in one
complete report/memo. However, if RM provides RCAD with documents on piecemeal basis discrepancies shall be pointed out in piece-meal.

After careful review of credit documents, external reports, legal opinions, RCAD will:

Issue DAC only after resolution of all outstanding issues/discrepancies or if valid


deferrals are in place;
Provide copy of DAC to MIS Officer for scanning of complete package (i.e. SCA +
Approval + IB Doccuments + Legal + External Reports) in Electronic Document
Management System (EDMS);
Provide copy of DAC to Processing Officer for feeding of Limit details, type, tenor,
rate of mark-up, expiry, etc. in core banking system (CBS). All entries to be duly
authorized/supervised by RCAD Head; and
Provide scanned copy of DAC to Operations via email or hard copy through fax or
mail (courier).

5.2 Documentation
5.2.1 General
1. It will be the responsibility of RMs to ensure that complete and legally enforceable
documentation is obtained as required for each credit transaction/facility;
2. All documents intended as security or support for credit facilities must be selected
and reviewed by Banks approved legal counsel conforming to the
transaction/facility, adequate coverage of the risks involved, completeness, proper
execution, and registration, if required. In case of renewal of facilities against the
same arrangements where documents are already vetted by the legal counsel, fresh
opinion will not be required;
3. The security/support documentation should be executed by the borrower as follows:
a. In case of individual, sole proprietorship and partnership, documents must be
signed by the owners. Bank will not accept any delegation of power for the
signing of credit documents.
--- Page 43 of 107 ---

b. In case of limited liability companies, credit documents will be signed by


authorized person(s) of the company/trustee or any other statutory body as per
Board Resolution or any Act delegating such powers.
4. In the case of evidencing a lien on specific property/assets, it will be the
responsibility of RM and RCAD to verify the actual existence by conducting joint visit
of the property/asset;
In case of pledge of shares, Banks lien should be recorded through CDC and letter of
lien (shares) should be obtained duly signed by the owner of shares.
In the case of residential/commercial/industrial property, Bank may get one of the
following types of title documents;
a) Sale Deed, GIFT (HIBA) Deed/Exchange Deed etc.
OR
b) If the title has been originated from the Revenue Record Department then:

Copy of register HaqDaranZameen/Jamanbandi issued by the relevant Halqa


Patwari.
Copy of Mutation (NAQAL INTEQAL) issued by the relevant Halqa Patwari.
AQS SHIJRA (Site Map of the property).

OR
c) In case of land located in Societies/Schemes.
Allotment letter/Transfer letter
OR
d) Permanent Transfer Deed (PTD) issued by the Settlement Department in respect of
evacuees properties.
Certificate from the relevant Halqa Patwari that this PTD has been incorporated
in the revenue record.
OR
e) Proclamation Decree issued by the Court of Law.
OR
f) Partition Deed duly executed in the Court of Law along with extract from the relevant
ownership record.
Following additional documents relating to the Title Deed must also be obtained:

Approved copy of the map;


Non-encumbrance certificate;
Valuation certificate from a Banks approved surveyor;
Extract from City Survey Department (PT-1) or Excise department if no record of
ownership is available with any other department; and
NOC/permission to create mortgage, in case of lease hold property.
--- Page 44 of 107 ---

N.B. Factum of mortgage is required to be entered in the relevant


revenue/ownership/authority/City Survey Record (PT-1) and certificate to this effect to
be obtained and must be placed on Banks record.
Instructions concerning the requirements to establish valid liens on various categories of assets
will be issued from time to time. In case of pledge of shares, banks lien should be recorded
through CDC.

In international division local regulatory requirements in each region will be followed for
creating a charge on assets/real estate.
Except as otherwise specifically provided, no disbursement against approved credit
facilities will be permitted before the RCAD determines that all required documents have
been received. RCAD will not issue the DAC unless all the required security / support
documentation have been received and lodged.
5.2.2 Lodgment
Except as otherwise provided, all documents received as security or support for credit
facilities must be recorded in safe-in and safe-out. These documents shall be lodged
under dual control with designated custodians in RCAD. In this regard, CAD will institute
control procedures.
5.2.3 Temporary Release
Temporary release of credit documents (previously lodged with RCAD) for any reason
e.g. collection of coupons, profit etc. will be allowed to RMs if the request (as per format
attached Annexure XXIIIA) is initiated by the respective authorized signatories of CBG,
CB, SAM, etc.:
Documents will be returned within one week from the date of release. RCAD will diarize
the receipt of released documents and ensure that the documents are received on due
dates. Release of documents for more than one week will require approval from
relevant level of CC originally required for total facility approval.
5.2.4 Permanent Release
Request for permanent release of credit documents will also be jointly initiated by the
RM and Unit Head (as per Annexure XXIII B) and approved by the relevant level of CC
originally required to approve credits as per Credit Approval Authority Matrix, provided
that:

Related facilities have been fully liquidated/settled/cancelled OR


Expired documents are to be exchanged/replaced with the new ones.

--- Page 45 of 107 ---

However, before release of documents RCAD to ensure that these documents are not
held to secure any other exposure in the Bank by confirming from all relevant
departments.
5.2.5 Expired Documentation
Continued lodgment of obsolete or expired documents in the vault will be permitted only
when problems in the relationship preclude obtaining new ones, or when they are
necessary to evidence the past due status of an obligation. The obsolete or expired
condition of such documents must be properly noted in the security/support section of
the respective SCA. In all other cases, obsolete or expired documents must be replaced
promptly.

5.2.6 Copies in Credit Files


Wherever practical, photocopies of security and support documents will be kept in the
appropriate section of the credit file to minimize the need for access to the originals held
in the vault.
5.2.7 Witness
1. All documents which may have to be presented to a Court of Law are required to be
witnessed in the presence of bank officer(s) / RM(S).
2. Two adult male Pakistani nationals will be preferred as witnesses. Female witnesses
may also be accepted, but two females are required to replace one male witness as
per prevailing laws.
3. Following precautions must be observed when selecting witness;
They must be physically present at the time of signing.
They must be properly identified, and number of their Computerized NIC must be
shown on the document.
To the extent possible, witnesses should be independent.
Witness of minor and insane will not be accepted.
Signatures of witness should match with his/her CNIC
4. As a rule, documents that are subject to foreign jurisdiction need not be witnessed.
Instead, the procedure prescribed by the foreign jurisdiction for the authentication of
signatures must be followed.

5.2.8 Minimum Prescribed Documents for Fund based Facilities


All working capital lines will be evidenced by a demand promissory note and a buy back
agreement. Both documents will be made out for the total amount of the line including
--- Page 46 of 107 ---

mark-up and will be listed in the security/support section of the SCA and renewed every
year. It is also recommended to obtain a letter of continuity from the borrower in order to
perfect the loan documentation.
In the International Group, loan documentation/agreements will be obtained according
to local legal requirement.
5.2.9 Assigned Contract Proceeds Acknowledgement
Unless specifically waived by the CC, assignment of contract proceeds must in all cases
be accompanied by the relevant acknowledgement from the project owner.
At the time of annual review, the RMs shall obtain details of projects/contracts in hand
with their original and residual value from the customer.

5.2.10 Letter of Guarantee (Company)


1. In cases where a letter of guarantee from a parent company or from a third party is
accepted, following requirements should be fulfilled;

The guarantee must be signed by an authorized signatory or signatories in


accordance with documentation held by the Bank. List of authorized signatories
duly attested by the parent company/third party to be attached with the
guarantee.
A Board Resolution must accompany a corporate guarantee authorizing the
issuance of the particular guarantee. A board resolution which does not mention
the name of the guaranteed company but refers to it as a company/ corporation
requires extra care in that we should ensure that by virtue of the governing law
the guaranteed company is deemed to be a subsidiary of the guarantor. A board
resolution supporting a corporate guarantee given by a foreign company should
have, apart from being notarized, the certification of the Ministry of Foreign
Affairs and the Embassy/Consulate of Pakistan/UAE/Qatar/Bahrain/Yemen in the
concerned country.
Certified copy of Memorandum and Articles of Association must be obtained to
ensure that issuance of any corporate guarantee is within the powers of the entity
and company is authorized to provide third party security/guarantee.
Legal opinion should be obtained from a lawyer domiciled in the country of
guarantor regarding the enforceability of the guarantee, if the guarantor (prime
obligor) is not residing in Pakistan/ domiciled in a country other than that of Law
of Jurisdiction). Following issues should be included in the opinion of the
concerned legal counsel:

That the guarantor was duly informed and is validly existing,


--- Page 47 of 107 ---

That the issuance of the guarantee falls within the power of the guarantor as
evidenced by the law of the country and by the by-laws of the guarantor,
That under the applicable laws of the country, the guarantee is valid and is
enforceable as per the terms and conditions thereof.

Confirmation that issuance of a guarantee by an unincorporated entity is within


the powers of the partnership agreement, joint venture agreement, or other
similar document to be obtained either by possession of a copy of the document
or by an opinion from approved CLC/Legal counsel.

5.2.11 Deferrals of Security/Support Documentation


Security documents have been segregated into Mandatory, Crucial and Semi Crucial
documents (Annexure XXIV A). All Waivers/Deferrals have to be properly justified by
RM. Following guidelines will be observed for allowing deferrals:

The customer has satisfactory track record.


The customer has undertaken in writing to regularize the deferred document within
the stipulated time.
The Bank is not exposed to a pecuniary risk on account of the proposed deferral.
Completion of deferred documentation is certain.
The deferral does not violate any of the regulatory requirements.
Deferral is required to be routed through the same CC who has originally approved
the credit.

Format for Document Waiver/Deferral Memo attached (Annexure XXIV B).


Maintenance
Monitoring of outstanding deferrals and other documentation discrepancies will be the
responsibility of RCAD. A monthly follow-up with the respective Business Units will also
be maintained by RCADs to ensure the timely elimination of exceptions. Deferral report
will be circulated by CAD to business, Audit, BRR and Risk.
The credit facilities of the customer shall automatically be frozen after 30 days on expiry
of the deferral.
5.2.12 Facility Offer Letter (FOL)
A facility offer letter should be issued to the customers by RM/SRM/Unit Head in
coordination with RCAD as per prescribed format (Annexure XXV). RM will provide FOL
duly accepted by the customer to RCAD for record.
Requirements
--- Page 48 of 107 ---

The facility offer letter must have the following minimum information:
1.
2.
3.
4.
5.
6.
7.

Description of facilities with approved amounts.


Security/support for each facility.
Mark-up/Commission (Pricing) and frequency (payment period by customer).
Overdue rate as mentioned in Bank schedule of charges for expired trade loans
Outstanding as of the date of the FOL under each facility.
The relevant terms and conditions from the approved text for the related facilities.
FOL should be signed by a Senior Relationship Manager/Unit Head and
RCH/RHCA/Cluster Head or any other Officer of the respective business group
with a valid power of attorney. Prior to sending it to the customer, the facility letter
must be reviewed and initialed by Head RCAD to ensure that it covers all the
conditions.
8. FOL must be signed and accepted by the owners or partners in the case of sole
proprietorships and partnerships. In the case of Limited Liability Company/any
other Statutory Body or a branch of foreign company/corporation, FOL must be
signed and accepted by an authorized signatory who has the powers to sign loan
documents.
9. Separate FOL should be obtained for each group company.
10. Accepted FOL must have company stamp.
11. All pages of FOL must be signed/initialed by the customer.
12. Copy of FOL signed and accepted by the customer must be obtained before
issuance of DAC.
13. In case of interim approvals with change in facility structure or security support,
the signed copy of offer letter to this effect should be obtained prior to issuance of
DAC.
14. Bank shall have the right to block or withdraw facilities whenever deemed
necessary.
Any exception to the above points shall be approved by the relevant CC in addition to
Senior Risk Manager/Head CRM.
5.2.13 Customers admittance of outstanding Funded +Non Funded exposure
on semiannual basis.
Customers admittance of outstanding Funded + Non Funded exposure shall be taken
on semiannual basis on sample basis.
5.3 General Rules
In order to avoid the possibility of any misunderstanding between what is approved by
the CC and what is enforced by the RCAD, there are certain rules that specify the
information required in describing each type of security and, to the extent possible,
standardize the wording to be used in each case. For perfection of documentation,
--- Page 49 of 107 ---

following rules that apply in general to the documents listed in the security/support
section of the SCA should be adopted;
Rule # 1
Signature on all documents must be verified by an authorized attorney holder of
Operations Department.
Rule # 2
When a term loan agreement is listed as security/support, this implies that Bank will not
only have the agreement itself but will also have all other related documents mentioned
in the agreement. Usually these documents are listed in a section of the agreement
called Conditions Precedent and they include such things as certificates of corporate
authority, etc. Transaction lawyer will be responsible to confirm completion of conditions
precedent mentioned in term loan agreements.
Rule # 3
Certain documents imply the existence of other documents. For example, a mortgage
on plant and equipment implies the existence of insurance assigned to the Bank.
Implied documents may or may not be listed in the security/support section of the SCA
but they must be in Banks possession.
Rule # 4
Loan Documents taken as evidence of debt may or may not be listed in the
security/support section since they are essential to the granting of credit and therefore
may be assumed to be always obtained in each and every case. The security/support
section should include only the documents that serve as security or support since their
obtaining depends on the CCs perception of the risks involved. In case the credit is
extended for a short period due to delay in annual review, the validity of loan documents
is essential and fresh loan documents must be obtained, if required.
Rule # 5
All Documents should be on Banks formats approved by the approved CLC/Legal
Counsel.
Rule # 6
Documents other than on Banks Format may be developed and vetted by Banks CLC
or his nominated lawyer.
Rule # 7
--- Page 50 of 107 ---

For Limited Liability Companies, signing powers should be checked by obtaining the
following documents.
Duly
signed
by
the
Secretary
of
board
verifying
upto
date
amendments, with date of
verification.

Articles of Association.
Memorandum of Association.

Board Resolution signed by all the Board Members/Directors or a copy of Board


Resolution certified by the Company Secretary quoting the extract of the Resolution
certified by the Board. OR
Power of Attorney.

Rule # 8
In the case of partnerships or sole-proprietorships, the documents should always be
signed by the partners/owners No delegation of powers accepted.
Rule # 9
Document should always be filled in completely and no blank should be left.
Rule # 10
Name and designation of persons signing the documents should be mentioned next to
their signature.
Rule # 11
Copies of the Computerized National Identity Cards of all persons who sign the
documents as borrower/witness/guarantor should be obtained.
Rule # 12
All limited companies would be required to execute Personal Guarantees (PGs) of their
directors as collateral support to borrow from the Bank. The Bank may consider waiver
of PGs based on the following:
#

Public Limited Company

Private Limited Company

SME

Have an external rating of


BBB (PACRA/JCR-VIS or
whose ratings are mapped
with PACRA/JCR-VIS and
are approved by SBP) or

Have an internal credit rating


of ORR 3 or better

Personal
Guarantees
irrespective of
business

--- Page 51 of 107 ---

better.
If the company is not
externally rated, an internal
credit rating of ORR 4 or
better would apply

constitution

2
A

Have at least a 3 year


relationship with the Bank
with all arrangements
observed (financially
disciplined) over the last 3
years.

Have at least a 4 year


relationship with the Bank with
all arrangements observed
(financially disciplined) over at
least the last 3 years

As above

2
B

In case of a new
relationship, the customers
track record for at least 3
years with other banks of
similar stature can be
considered.

In case of new relationships,


the customers track record for
at least 5 years with other
banks of similar stature can be
considered.

As above

Note: for each case of the categories above, condition 1 and 2 must be jointly met (2A
or 2B whichever is relevant).
In addition to relevant CC, the approving authority for the waiver of PG rests with GER&CP. However, PGs for credits lines fully secured by cash collateral/liquid securities
will not be required (as a partial facility among multiple facilities or total cash/liquid
secured). For this RCAD shall confirm that the facility is fully secured by cash/liquid
securities.
Rule # 13
In addition to the basic criteria, following exceptions are additionally identified whereby
the PG of directors would not be required.
1. In case of foreign controlled private companies, whose directors in Pakistan are only
paid directors, either the PG of directors in Pakistan or bank guarantee or corporate
guarantee from the holding company may be obtained.
2. In certain cases the Bank may be willing to consider a strongly worded letter of
comfort duly drafted by the Banks legal counsel. Such exceptional cases must be
approved by GE-R&CP.
3. In case of nominee directors representing GOP direct/indirect interest and non
executive directors of Multi National Corporations.
4. In case of GOP owned/majority holding entities.
--- Page 52 of 107 ---

5. In case of private limited companies including foreign controlled companies resident


in Pakistan, where the advances are fully secured by Class 1 Security.
6. In case of directors who are full time paid employees of the company and the
position of director is held by them owing to their professional and technical
capabilities. A director of a company who is not related to sponsors/owners of the
company,
having
a
post
graduate
education
in
business/commerce/accountancy/law/finance/management or in any subject related
to his job, along with a minimum related experience of five years, may be considered
as a professional director.
7. Directors who are nominees of corporate entity/financial institution and a guarantee
have been given by the corporate entity/financial institutions nominating such a
person as a director.
8. A nominee director, nominated by a creditor bank on the board of a private limited
company.
9. In cases where the PG from the directors representing majority interest in a private
limited company are backed by assets that are held in the name of these directors or
in the name of their spouses are sufficient, severally, to cover the amount of
financing given, the requirement of obtaining PG from the directors representing
minority shareholding in the company may be dispensed with and need not be
insisted upon. Evidence about the assets of directors and/or their spouses will need
to be obtained, in the form of a Personal Net worth Statement (PNWS) filed by such
directors and/or their spouses, which shall be properly placed in the Banks record.
In order to seek a waiver from the requirement of submission of PG of directors, the line
management would need to raise a detailed memo providing the background, Banks
experience with the customer, and any other significant or material factors that would
justify the waiver of PG, on a case to case basis.
Rule # 14
Charge certificate from SECP, in case of creating/modifying any type of charge on
assets of the limited liability company, should be obtained.
Rule # 15
Any change in the ownership of the company (within the shareholding structure) or
outside shall require NOC from the Bank.
Rule # 16
Banks lien should be created with proper evidence (certificate from the relevant
authority) in case of any tangible collateral taken as security.
(On every renewal of SCA/Facility; Intactness of the Banks lien/charge, be ascertained
through retrieval of search report for charges registered with SECP or PTI/Loan Excise
Department. Such intactness of the Banks lien/charge for tangible collateral originating
--- Page 53 of 107 ---

from Land Revenue Department to be ascertained by pooling Extract from Record of


rights after every 4 years, where underlying record of rights/Jamabandi is updated
periodically after 4 years.)
Rule # 17
Third party guarantee (personal/company) shall be obtained in case of security pledged
(under lien), or property mortgaged is third party owned by them.
Rule # 18
Facilities against Third Party instrument/certificate (DSCs/SSCs/RICs etc.) shall not be
allowed. Temporary extensions as per credit policy may be sought incase existing
facilities are issued against this security. Further, business is required to persuade the
customers to replace pledge of 3 rd party DSCs/SSCs/RICs etc. with securities in their
own names.
Rule # 19
The amount should be written in full both in words and figures.
Rule # 20
All pages of the documents should be signed by the borrower in order to avoid any
dispute later on.
Rule # 21
Cross Company guarantees should be obtained in case of unallocated facilities (limits)
in a group of companies i.e. where facilities can be allocated amongst various
companies. Further BBFS and request letter to be obtained from the borrowing
company.
Rule # 22
In case of lending to Multi National Private Limited Companies, the personal guarantee
of local sponsoring directors must be obtained.
Rule # 23
Any agreement must be signed by the borrower and the Bank e.g. Buy Back
Agreement, Term Loan Agreement etc.
Rule # 24
--- Page 54 of 107 ---

Term Loan Agreement should be obtained for all term loan (NIDF) financing in line with
the date of disbursement.
Rule # 25
Company stamp/seal should be affixed on all documents executed on behalf of a
company.
Rule # 26
The documents should be signed on behalf of the Bank by RM/TL/RHCA or Branch
Managers/Officers with valid POA.
Rule # 27
FE-25 loans should not be extended to customers with ORR 9 or worse.

5.4 Facility Utilization


Operating Procedure:
It is the responsibility of RCAD to feed in limits of DP, Markup rate, Insurance and
collateral in the system so that customer can utilize the facilities.
Transaction vouchers are prepared by Branch Operations. Two Officers will sign the
voucher for utilizating any facility after ensuring that sufficient cushion is available under
the valid approved lines advised by RCAD. Later on the voucher will be posted into the
system by one Officer and supervised by another Officer. These Officers may be the
same who have prepared/signed the voucher or different as the case may be.
Any facility utilization by Branch Operations without valid DAC issued by RCAD is not
permissible. A disciplinary action will be taken against any Officer who violates the
policy.
5.5 Execution of Agreement
For financing to rice and other commodity exporters, the Bank releases consignments
from Mucaddam to C&F agent (both on Banks approved panel) for onward shipment.
For each such transaction, the customer executes TR with transit Insurance Policy. An
undertaking/indemnity is also obtained from the C&F Agent.
--- Page 55 of 107 ---

It is preferred that a tripartite agreement between the customer, C&F Agent and the
Bank, replacing TR/Undertaking/Indemnity, is executed. A copy of the agreement, which
has been approved by the CLC, is attached. (Annexure XXVI). Deviation to this will
require approval of CC.

CHAPTER 6
VENDOR MANAGEMENT
6.1 Purpose
This section covers enlistment, delistment, suspension, services, functions and
performance evaluation of credit vendors for Corporate, Commercial, SME and Agri
Credits.
Credit Vendors
Credit vendors are external agencies which help banks in decision making and mitigate
risk by providing following services to the bank:
Services Includes:

Valuation & Stock Inspection


Muccadamage
Clearing & Forwarding
Business Information Reports

--- Page 56 of 107 ---

Vendor Management Unit (VMU)


Vendor Management Unit (VMU) is an integral part of Credit Policy Division and deals
with Vendors who provide various services required by the Bank.
6.1.1 Valuator
Valuators provide valuation of fixed assets i.e. land, building, equipment, vehicles, plant
and machinery obtained to secure financing facilities as required in the credit process.
Valuators also conduct valuation of stocks (Pledge/Hypothecation).
6.1.2 Mucaddam
Mucaddams are appointed to have effective control on pledged goods of the Bank
provided by the customer to secure financing facilities.
6.1.3 Clearing and Forwarding Agents
Clearing and forwarding agents are engaged to handle consignments as per approved
arrangement and get clearance of the goods from custom authority.
6.1.4 Business Information Report Provider
Business Information Report (BIR) Provider gives report on borrowers essentials, facts
and figures regarding his overall business and ability to meet credit obligations including
the following:
i)
ii)
iii)
iv)

Local Credit Report


Market Checking Report
Search Report
Foreign Credit Report
Any future credit vendor requirement will be carried out by VMU for due diligence of any
material function/activity required to be outsourced as per outsourcing guidelines.
Vendor Management Process:
For this purpose VMU conducts the following activities:

Enlistment, suspension and delistment of Vendors


Performance evaluation of Vendors
Centralized solicitation and payments to BIR service provider

6.2 VMC Definition and Constitution


--- Page 57 of 107 ---

Vendor management committee (VMC) constitutes of the following:

Head Credit Policy


Head CRM Pakistan
Head Credit International
GE- Risk & Credit Policy

The functions/ terms of reference of VMC shall include the following:


1)
2)
3)
4)
5)

Enlistment (Temporary/Permanent) of Credit Vendors as per eligibility criteria.


Addition of regions for Vendors for conducting business
Enhancement in limits of Valuators/Mucaddams and handling limit of C&F Agents
Reinstatement & Delistment of Vendors
Any other related matter

6.3 Enlistment of Vendors


Enlistment of Vendors shall be conducted in following two phases:
Scrutiny of Vendors request
Approval, Enlistment and execution of agreement
6.3.1 Scrutiny of Vendors Enlistment
Enlistment of vendors will be scrutinized on the following requests:

Unsolicited Request (Vendors approach the Bank for enlistment).


Solicited Request (Bank approach the vendors).

6.3.1.1 Eligibility Criteria


1) Must be enlisted at PBA and member of Pakistan Engineering Council (PEC) (in
case of Valuators/Stock Inspectors)
2) Must have valid Custom License (in case of C&F Agents)
3) Satisfactory performance report from atleast 3 Banks (Head Offices only)
4) Satisfactory performance report from atleast 1 of the top 5 banks (Head Offices only)
for Mucaddam
5) Clean CIB report of the firm and their Partners/Directors
6) Relevant experience of business for atleast 3 years for BIR and Valuators/Stock
Inspectors and 5 years for Mucaddam and C&F Agents
7) Acceptance of Banks Security Deposit (applicable for C&F and Mucaddam)
8) Acceptance of Banks Schedule of Charges (not required in case of C&F Agents)
9) Acceptance of Banks report formats (for Valuator and BIR reports)

--- Page 58 of 107 ---

Note:

Any exception to the above requirements will be approved as per DAM (Annexure
XXVII)
Compliance of eligibility criteria # (1) and (2) is mandatory and no exception will be
allowed.
If the ownership of any credit vendor fully/partly includes management/employment
of the bank, enlistment will not be allowed.

6.3.1.2 Documents/Formalities Required


To seek approval of VMC for enlistment of vendors who meet eligibility criteria, VMU will
send the following documents:

Standard and specific application form (Annexure XXVIII)


Schedule of Charges (Annexure XXIX)
Security Deposit (Annexure XXX)

Site Visit shall also conducted by VMU if Vendors Head Office is situated in Karachi or
by respective Head RCAD, if the Vendors principal office is outside Karachi. Required
rating and visit report shall be prepared by VMU or RCAD as the case may be and
reviewed by VMU. Format for site visit report is attached (Annexure XXXI)
6.3.1.3 Approval
If the rating and recommendations are satisfactory, proposal for enlistment will be sent
for approval to VMC. After approval of VMC, VMU will intimate enlistment to the vendor.
Vendors will be initially inducted on probationary period of 6 months. The initial limit
assigned to vendors will be based on the limit defined in (Annexure XXXII).
All related departments will be advised about the new enlistment of vendors on the
Banks panel.
Proposals with unsatisfactory ratings will be declined and vendor will be advised
accordingly.
6.3.1.4 Permanent Enlistment
On completion of probation period, VMU will review the performance of the vendors by
obtaining the relevant feedback from Head RCAD, RM, CPU/TPC and banks (if
required) and submit proposal for permanent enlistment/ extension in probation period/
delistment to VMC for approval.

--- Page 59 of 107 ---

6.3.1.5 Execution of Agreement


Agreement as per (Annexure XXXIII) will be executed either by VMU if Vendor Head
Office is situated in Karachi or by respective RCAD if the Vendor is having its principal
office other than Karachi for the execution of agreement. RCAD will send the original
agreement to VMU. Agreement with vendors will be renewed after three years.
VMU will circulate the Banks approved vendors list to all concerned on semiannual
basis i.e. 1st week of January and July.
6.4 Addition of Regions
Addition of region for vendors for conducting business will be scrutinized on the
following requests:

Unsolicited Request (Vendors approach the Bank for addition of region).


Solicited Request (RCADs approach/requests for addition of region).

Request for additional region will be scrutinized on the following criteria:

Satisfactory performance report from respective RCADs (for Valuator and


Mucaddam) and for BIR service Provider, feedback of respective Head RCAD and
RM.
Satisfactory Performance report from other banks
Site visit report of Vendors office where business is intended.

Allotment of additional regions to vendors will be approved by VMC.


6.5 Evaluation of Vendors
6.5.1 Performance Evaluation of Vendors
Performance evaluations of vendors will be conducted semiannually by VMU based on
performance rating models (Annexure XXXIV). An extensive MIS (Annexure XXXV)
shall be maintained to collate the banks internal feedback. In addition feedback from
banks regarding performance of vendors will be obtained once in a year. Performance
of the vendors will be reviewed by Head Credit Policy and action will be taken
accordingly.
If a vendor is reported to have indulged in any of the following discrepancies, Event
Driven Evaluation will be conducted against the vendors (Valuator, Mucaddam, C&F
Agents and BIR Service Provider):
6.5.1.1 Valuators
--- Page 60 of 107 ---

Head RCAD will investigate the reported incidence, and recommend to VMU
appropriate action against the valuator in case of following incidents/issues.

Overvaluation
Misreporting/Misrepresentation of the facts
Fraud/ Forgery
Professional Incompetence,
Misconduct

6.5.1.2 Mucaddam
Head RCAD will investigate the reported incidence, and recommend to VMU
appropriate action against the Mucaddam in case of following incidents/issues:

Lifting of Pledged Stock without authority


Misreporting/Misrepresentation of the facts
Involvement of Mucaddam with customer
Fraud/ Forgery
Professional Incompetence
Misconduct etc

6.5.1.3 Business Information Report Provider


Head RCAD, RM, RCRM and CPU/TPC will investigate the reported incidence, and
recommend to VMU appropriate action against the BIR service provider in case of
following incidents/issues:

Unnecessary delays in providing the Business Information Report


Misreporting/Misrepresentation of the facts
Professional Incompetence,
Misconduct etc

6.5.1.4 Clearing & Forwarding Agent


Head RCAD and CPU/TPC will investigate the reported incidence, and recommend to
VMU appropriate action against the C&F Agents in case of following incidents/issues:

C&F Agents Process/transit delay.


Mishandling of Goods on C&F Agents behalf.
--- Page 61 of 107 ---

Involvement of C&F Agents with customer


Non Compliance of Banks Instruction
Fraud/ Forgery
Misconduct etc

Vendor will be required to provide clarification regarding discrepancies


observed/reported in semiannual performance evaluation/ event driven evaluation.
If justification provided by vendor is unsatisfactory, warning or suspension letter will be
issued to the vendor depending upon the severity of the issue/discrepancy.
Note: The above mentioned issues/discrepancies of various Vendors do not enforce a
limitation, any other issue related to any Vendor can also occur. Relevant Head RCAD,
RM and CPU/TPC are responsible to intimate/report to VMU/CAD Head Office of any
noticed discrepancy/issue/problem. Other departments (such as RCRM, SAM, audit,
BRR etc) can also report VMU any noticed discrepancy/issue.
6.5.2 Suspension

Initial suspension of vendor will be subject to the concurrence of Head Credit Policy.
Suspension period will range between 3 months to 1 year (in some cases the
suspension period may extend beyond 1 year) depending upon the gravity of the
issue/discrepancy.
Suspension of Valuer/Mucaddam/C&F Agents/BIR service provider implies
suspension of their services from all their approved regions.
The existing assignments will be withdrawn from the suspended valuator and will be
assigned to another valuator. However, the recently submitted assignments will be
acceptable.
PBA will be intimated about the suspension of valuator.
In case of suspension of services of Mucaddam, Country Head CAD will provide the
details of pledged sites under the administration of suspended Mucaddam.
All pledged sites handled by the suspended Mucaddam will be withdrawn and
handed over to other Mucaddams within 90 days time.
Proposal for suspension of vendors services will be submitted to VMC for approval.
After the completion of suspension period, proposal for re-instatement of vendor will
be submitted to VMC after reassessment of his performance.

6.5.3 Delistment
In case the issue remains unresolved/unsettled during suspension period and findings
suggest that vendor was found guilty, proposal for the delistment of vendor will be
submitted to VMC approval and vendor, other stakeholders, and PBA will be advised
accordingly. In addition to delistment, if the nature of discrepancy/wrong doing calls for
initiation of legal action against the vendor, it will be the responsibility of respective
--- Page 62 of 107 ---

businesses and CAD. In case of loss, same will be recovered from the security deposit
kept by the vendors with the bank (applicable for Mucaddam and C&F Agents).
6.5.4 Vendors Delisted/Re-Instated by PBA/UBL
In case a valuer is delisted by PBA his name will also be removed from the Banks
approved valuers. However, if the said valuator is re-instated by PBA, he will also be
restored on the Banks panel of valuator with the approval of Head Credit Policy, after
conducting reasonableness of the case.
Other Vendors (C&F Agents, Mucaddam and BIR Provider) if once delisted from the
Banks approved panel will not be considered for re-enlistment. However, exception for
re-enlistment of these Vendors will require approval of GE- Risk & Credit Policy.
In case of fraud and forgery or any gross misconduct is proved, vendors reenlistment
will not be considered.
6.6 Services of Vendors
6.6.1 Valuator
On formal request by RM, RHCA, Unit Head the Head RCAD will nominate a valuator
from the Banks approved list (Annexure XXXVI A), and will intimate the RM, RHCA,
Unit Head.
In this regard, Head RCAD will ensure equal distribution of the cases amongst the
enlisted valuators in their respective region.
For this purpose Head RCAD will send a request letter to the assigned valuator to
conduct a survey of the property and provide valuation report. A copy of this letter is
endorsed to RM, RHCA, and Unit Head to intimate customer to liaise with the valuator.
Valuator will send the valuation report on prescribed format to RCAD (along with invoice
as per schedule of charges) for review.
RCAD will review the invoice and send its copy to the respective RM, RHCA, Unit Head
for payment within 7 days. Respective RM, RHCA, Unit Head is responsible to recover
the valuation charges from the customer within stipulated time. Branch will send a pay
order/Cashiers Cheque to RCAD within 7 working days from the date of request for
onward delivery to Mucaddam. RCAD will hold the valuation report till payment is
received.
If the payment is not received by the prescribed time, RCAD will send two reminders to
RM, RHCA, and Unit Head with an interval of four working days with a copy to VMU,
--- Page 63 of 107 ---

respective CAD Heads (North and South), Country Head CAD and respective General
Manager (GM)/ RCH.
In case payment is not received despite reminders, VMU will intimate respective
GM/Regional Corporate Head to arrange payment to Valuator within 3 days on their
own account.
6.6.2 Mucaddam
On Customers request RM, RHCA, Unit Head will forward the customers request to
respective RCAD to arrange Mucaddam for pledge of goods of customer in consultation
with their respective Head CADs (North/South). The nomination of Mucaddam will be
based on Banks approved list (Annexure XXXVI B).
Prior to assigning the pledge site to Mucaddam, RCAD will visit the pledge site/godown
to ascertain the condition of godown and in case of any deficiency, RCAD will intimate
the RM for rectification.
After appointment of Mucaddam, RCAD will send him a letter to take possession of
pledged stock with a copy to concerned RM, RHCA, Unit Head and the borrower.
Mucaddam will send the stock report to respective RCAD after sign off by the customer
with a copy to RM.
In case, pledged stock is kept in a rented godown, Letter of Disclaimer on non-judicial
stamp paper of Rs.200/- shall be obtained along with copies of CNIC of owner(s) of
godown and two witnesses.
Processing Officer of RCAD will forward a copy of appointment letter to MIS officer to
record date of appointment of each mucaddam in the MIS sheet.
Following guidelines shall be applicable for appointment and monitoring of muccadam:

All available mcuaddams services to be used in each region.


Pledge volume in each region (In Rs.) which can be assigned to a single mucaddam
(aggregation of all sites amount) to be capped at 25% of that region (Quetta and
Peshawar excluded).
Any exception to this will require approval of Head Credit Policy with a proper
justification through email by CAD Heads (North & South).
This is a moving cap and needs to be monitored and adhered on a ongoing basis
when the sites (amount wise) are added or reduced during the month.
It is noted that in some regions there are less than 5 sites or less than 4 available
muccadams. In such cases RCAD Heads should consult with CAD Heads (North &
South) for allocation who will allow allocation keeping in view the North and South
muccadam concentration the overall.
CAD Heads (North & South) will monitor this and VMU will take regular portfolio
checks.
--- Page 64 of 107 ---

6.6.2.1 Disbursement against Pledge of Stock


Once the pledged stocks are under effective possession of banks nominated
Mucaddam the customer may request for disbursement of funds in NICF-pledge/FIM
account. RM, RHCA, Unit Head will forward the disbursement request letter to
Operations to verify that the request letter is on companys letterhead and signed by
authorized signatory (ies) of the company.
Operations Manager will issue a letter to disburse the amount by affixing a stamp on the
customers request letter. This letter is signed by Processing Officer and RCAD.
Drawing power (DP) is calculated on the basis of Mucaddams pledge stock report,
verification of current rate from the available sources or as provided by Country Head
CAD and available cushion. The DP can be enhanced in Core Banking system (if
applicable).
6.6.2.2 Pledge Stock Report
Particulars of pledged stock report are entered into Pledge Stock Register under a
separate folio allotted to each customer in the register. The Pledge stock report is
placed in the Pledge Stocks Report file.
The Mucaddam will send stock report by the 3 rd working day of every subsequent month
to RCAD, and/or in case of changes in inventory (Quantity and Value of stock) of stocks
within 2 working days of the change. The processing officer of RCAD will ensure that
the pledge stock reports are received in time without any deviations and entries are
made in the Pledge Stock Report file. He will also check and adjust DP accordingly.
Stock reports concerning finance provided under PPM for Cotton and Rice will also be
received as per frequency defined in respective PPMs.
Insurance policy of pledged stock is checked according to guidelines given in insurance
policy and as per Credit approval.
Signatures on all stock reports are verified by Operations of the respective branch.
6.6.2.3 Delivery Order
Prior to release of DO, RCAD will ensure that borrower has deposited the required
amount and sufficient cushion is available in customers NICF-Pledge/FIM accounts. If
cushion is not available, intimation will be sent to customer for adjustment in account or
to replenish stocks to the extent of shortfall with margin.
Branch operation/RCADs processing officer will forward DO to RCAD. After RCADs
review/signature it will be sent to Mucaddam for release of pledged stocks. In no case
DO will be delivered to customer.

--- Page 65 of 107 ---

After issuance of DO, RCAD will ensure that DP of the customer has been reduced in
Core Banking system accordingly.
6.6.2.4 Rotation of Mucaddam
For rotation of Mucaddam, RCAD will ensure that it is done as required.
MIS Officer will intimate Processing Officer about all upcoming rotations, one month
prior to the expiry. RCAD will ensure necessary arrangements for the smooth transition
from one Mucaddam to another. New Mucaddam will be advised by RCAD to take
possession of pledged stock from the old Mucaddam and the same will be intimated to
RM/UNIT HEAD/RHCA and previous Mucaddam.
Fresh stock report prepared by new Mucaddam will be endorsed by both the new and
old Mucaddam and counter-signed by the borrower. Quantity and value of pledged
stock report will be counter-checked with the stock report submitted by the old
Mucaddam. In case of any shortfall or other observation, RCAD will take immediate
steps to resolve it and may escalate the matter to VMU (If required).
6.6.2.5 Payment to Mucaddam
Mucaddam will submit monthly bill as per agreed Schedule of Charges to RCAD. RCAD
after verification will forward it to RM, RHCA, and Unit Head to make payment.
Respective RM, RHCA, Unit Head is responsible to recover the Mucaddamage charges
from the customer. Branch will send a pay order/cashiers cheque to RCAD within 7
working days from the date of request for onward delivery to Mucaddam.
If the payment is not received by the prescribed time, RCAD will send 2 reminders to
RM, RHCA, and Unit Head with an interval of 4 working days with a copy to VMU,
respective CAD Heads (North and South), Country Head CAD and respective GM/
Regional Corporate Head.
In case payment is not received despite reminders, VMU will intimate respective
GM/Regional Corporate Head to arrange payment to Valuator within 3 days on their
own account.
6.6.2.6 Stock Inspection- Pledge
RCAD will check the due date for stock inspection and nominate a stock valuer to
conduct the stock inspection to ascertain quality, quantity, total market value and FSV of
the pledged stocks. Valuer will also be provided with the latest available stock report
along with the request letter. A copy of the request letter will be endorsed to each RM,
RHCA, Unit Head, customer and Mucaddam, in case it is not a surprise inspection.
Inspection Report will be submitted by the valuer within 5 working days from the receipt
of request letter on companys letter head.
--- Page 66 of 107 ---

A copy of Inspection report will be forwarded by RCAD to RM, RHCA, Unit Head and/or
RBH, RCH for review, information and corrective action in case any discrepancy is
identified. RCAD will be responsible to track the observations till final resolution of the
issue and will inform VMU immediately to take up the matter as soon as any
discrepancy is identified.
RCAD will check stock inspection charges from agreed schedule of charges and
forward the original bill to Operations Manager through RM, RHCA, Unit Head for
payment to the stock valuer by debit to borrower account.
Branch will send a pay order in favor of stock valuer to RCAD within 3 working days
from the date of receipt of request by RCAD for onward delivery to stock valuer.
6.6.2.6.1 Inspection by RM
6.6.2.6.1.1 Stock inspection report
RM will submit Inspection report within 2 working days after conducting inspection to
RCAD for review. A copy will also be forwarded to RHCA, Unit Head and/or RBH for
information and necessary action, where required. The issue will be tracked by RCAD in
consultation with Mucaddam until it is resolved and RCAD will inform VMU immediately
to take up the matter as soon as any discrepancy/observation is identified.
Mucaddam will monitor the quality of pledge stocks on ongoing basis and in case of
deterioration, will intimate the Head RCAD and Country Head CAD. Simultaneously
Head RCAD will inform the RM, RHCA, and Unit Head and arrange lab test for
examining the quality of pledged stocks.
6.6.2.6.2 Surprise inspection by RCAD staff
To arrange a surprise inspection, RCAD will nominate any of its team member
(preferably processing officer) and issue an authority letter for surprise inspection on
banks behalf addressed to customer for information and co-operation.
6.6.3 Clearing and Forwarding Agents
To engage the services of C&F agents for export/import transaction TPC/CPU/RM will
provide the list of banks approved C&F Agents (Annexure XXXVI C) to the customer
along their handling limit.
6.6.3.1 Export Transaction
The customer will negotiate the deal with C&F agent for forwarding charges. C&F Agent
will take the possession of goods from customer directly from his factory or port as the
--- Page 67 of 107 ---

case may be and fulfill the custom requirements, prepare Bill of Shipping (other
transport documents) and hand over the copy of documents (certified by the custom
authority stamped as Allow Loading on the shipping bill) to the customer. Customer
will submit these documents alongwith E-Form to Bank.
C&F agent will load the goods on the shipping vessel and receive the B/L from the
shipping company in the name of the Bank and provide a copy to the customer. The
customer will attach all the relevant documents including the transport documents with
E-Form and provide the same to TPC for processing. TPC will check and process the
documents under LC or on collection basis and send the same to the Importers Bank
for payment.
On completion of documentation by the Exporter, TPC will send the original documents
to the Importers bank for payment/acceptance.
6.6.3.2 Import Transaction
The customer will negotiate the deal with C&F agent for clearing charges. CPU will send
the following endorsed documents to C&F Agent to clear the goods from the port:

B/L (Other Transport documents)


Commercial Invoice

C&F Agent will file copies of all documents along with Bill of Entry with custom authority
to obtain their approval and pay all the custom taxes as per rules and regulations on
behalf of the customer, which will be recovered later as per the agreement/instructions
agreed with the customer.
Custom authorities after checking the goods, amount and quantity will stamp the Bill of
entry for Release Order. C&F Agent will take the original BL and Invoice to the local
agent of the shipping company along with the Bills of entry stamped with Release order
to get a DO and get custom inspection done in the shed as per the Bill of entry and take
over the possession of the goods.
C&F agent will hand over the goods to the Mucaddam and make sure that the goods
are transported to the warehouse/ factory of the customer. The Turnaround time for
delivering the goods to factory premises/godown is maximum 7 days. Mucaddam will
provide the stock report to respective RCAD On receipt of goods same day. C&F Agent
will intimate Branch/RCAD the proceedings as well as the customer along with the
details of dispatch (Biltee documents, # of trucks, and weight of goods).
6.6.4 Business Information Report Service Provider
On request by RCAD/ Business/ TPC, VMU will arrange for BIR service provider based
on the Banks approved list (Annexure XXXVI D).
--- Page 68 of 107 ---

6.6.4.1 Local Credit Reports, Market Check Reports and Search Reports
RM, RCAD and branches will route their request for credit reports through VMU
regarding fresh clients, renewals and enhancements. The cut-off timings for sending
requests is 0900 1500 hrs, Monday through Friday, and 0900 1230 hrs on Saturday.
Request sent after the prescribed timing will be processed on next working day.
VMU will forward the request to vendor after checking information in respect of name of
the customer, address, place, IBCA number (where applicable), amount,
document/transaction number (in case of payment via UniRemote) and update the MIS
sheet.
For payment to BIR service provider, branch on behalf of RM, RCAD will directly send
the amount via UniRemote or IBCA to the Central payment Section through Sundry
Deposits account. Collection of payment from the customer will be responsibility of
RM/RCAD/originating branch, who has initiated the request for BIR.
6.6.4.2 Foreign Credit Report
On the request of CPU/TPC Trade VMU will approach BIR service provider for credit
reports. The cut-off timings for sending requests is 0900 1500 hrs, Monday through
Friday, and 0900 1230 hrs on Saturday. Request sent after the prescribed timing will
be processed on next working day.
VMU will forward the request to vendor after checking information in respect of name of
the customer, address, place, IBCA number (where applicable), amount,
document/transaction number (in case of payment via UniRemote) and update the MIS
sheet.
For payment to BIR service provider, CPU/TPC Trade will directly send the amount via
UniRemote or IBCA to the Central payment section through Sundry Deposits account.
Collection of payment from the customer will be responsibility of RM, RCAD, CPU/TPC
and originating branch.
In case the contact person of the company is unable to be located or the required
information is delayed, BIR service provider will approach VMU to resolve the matter.
The cut-off time for RM, RCAD, and CPU/TPC to intimate VMU in such cases will be 12
working hours.
BIR service provider will not entertain/decline any request without informing VMU.
6.6.4.3 Submission of Report

--- Page 69 of 107 ---

BIR service provider will send the report directly to the concerned RM, RCAD,
CPU/TPC and branch with copy to VMU along with Invoice as per following Turn Around
Time:

Local Credit Reports/Market checkings 7 working days, (for urgent cases 4 working
days).
Search Reports 5 working days.
Foreign Credit Reports 10-15 working days.

Caution
The concerned RM, RCAD, CPU/TPC and branch will not disclose this report to any
third party or the borrower/applicant/client.
Branch will pay charges for reports to Central Payment Section through
IBCAs/uniremote on behalf of RM, RCAD and CPU/TPC, and credit the amount in
Sundry Deposits a/c. A/c No 3590-44-8 for Local Credit Report (and all other reports)
and 3590-24 for Foreign Credit Report.
Original invoices will be sent to Central Payment Section for making payment to the
service providers.
Central payment Section will debit Sundry Deposit Account LCR (Code# 3590-44-8) for
Local Credit Report Charges and all other reports and FCR (code # 3590-24) for
Foreign Credit Report Charges. The withholding tax will be credited to Sundry Deposits
Accounts Client services code # 343086.
6.6.4.4 Payment to BIR Service Provider
Central Payment Section will send a pay order in favor of BIR service provider to VMU
for onward delivery to BIR service provider.
6.7 Limit Enhancements
6.7.1 Limit Enhancement- Valuator/ Mucaddam
Valuator/Mucaddam may request for enhancement in per party valuation/pledge limit.
VMU will scrutinize the request on following criteria:

Satisfactory performance report from RCADs


Satisfactory Performance report from other Banks (If required) (Head Offices only)
Ability of the valuator/Mucaddam

On fulfillment of above criteria, VMC will approve the enhancement in limit of


Valuator/Mucaddam and on approval VMU will intimate Valuator/Mucaddam and inform
--- Page 70 of 107 ---

all concerned about the enhancement in per party valuation/pledge limit and update the
MIS sheet.
6.7.2 Limit Enhancement- C&F Agents
Business or C&F Agent may request for enhancement in the handling limit of a C&F
agent. VMU will evaluate the request as a one-off case, or on permanent basis.
For One-Off case, VMU will obtain the Indemnity bond from the customer along with
other required documents from C&F agent and submit proposal to VMC. In case of limit
enhancement on permanent basis VMU will ensure that 5% security deposit will be
provided by the C&F Agents. In case of deviation, VMC will be requested for the same.
However, existing C&F agents who have been exempted from 5% security deposit
requirement shall continue working as per their existing arrangements.
Following criteria is applied for enhancing the limit of C&F agents: Pas track record of
C&F agent with the Bank, market reputation, financial strength, capacity, working
experience etc.
For safe custody of security deposit submitted by C&F agents, banks lien is marked on
security deposit and lien marked instrument is provided to RCAD CBG Karachi for safe
custody.
On approval VMU will intimate C&F agent and after completion of required formalities
inform all concerned about the enhancement in handling limits of the Agent and update
the MIS sheet.
6.8 One-Off Approval- C&F Agents
Business may request for the appointment of C&F agent not enlisted on the Banks
approved list of C&F agents on One-Off basis.
VMU will review the One-Off request and will obtain the Indemnity bond from the
customer along with the other required documents from C&F agent and submit proposal
to VMC for approval.

--- Page 71 of 107 ---

CHAPTER 7
CREDIT MAINTENANCE
Once the credit is approved and disbursed, it becomes imperative to keep a follow-up
on the customer to maintain the credit quality and ascertain timely repayments. CAD
plays a central role in Credit Maintenance by keeping a record of the customers
information, establishing controls to monitor customer performance, and highlighting
issues, if any. CAD shall aid implementation of Credit Policy and sound credit practices
by raising triggers where required.
7.1 Credit Process
7.1.1 Administration of Approved Credit Facilities
Call Reports
--- Page 72 of 107 ---

There must be at least one call per quarter except for lending against cash collateral or
against liquid securities (as defined by SBP). As a general guideline, following may be
discussed in Call Reports:

Credit issues;
Companys performance year-to-date vis--vis sales/profitability;
Industry situation;
Comment on risk areas identified in last SCA package;
Future plans, etc., including potential requirements for incremental facilities;
Workers/labor related issues, timing for union negotiations and prior experience of
such negotiations;
Business/marketing;
Our earnings year-to-date from the relationship;
Current issues;
Potential deals; and
Information on competitors strengths/weaknesses and current situation.

Calls on customers should increasingly be used as a forum for obtaining checking on


competitors especially those competitors who are the Banks customers/prospects,
strengths/weaknesses of other banks, and status of products offered to customers by
other banks.
Calls should also focus on the following:

How their competitors are doing;


Industry demand/supply dynamics and future projections. International markets
situation;
Outlook for change in mark-up rates, devaluation, and inflation, and their impact on
the customers business;
New projects expected to come on stream in the customers business;
Regulatory changes and their impact;
Industrys critical success factors;
Raw materials procurement policy;
Parent policy vis--vis its subsidiaries in Pakistan for Multinationals; and
Likelihood of getting parent support for locally supported facilities for Multinational.

All Call Reports must follow the following format outline:

Call Report;
Company;
Calling Officer;
Calling Upon (Customer/Designation);
--- Page 73 of 107 ---

Date: DD/MM/YYYY;
Results;
Conclusion; and
Action plans/follow-ups/target dates.

Circulation of Call Reports


Call reports, on prescribed formats, will be sent by the RMs through email to their
RHCA/RBH/HCC and RCH/HRA, RCAD and relevant CC. Business Heads will be
responsible for taking action, if any, after having gone through the contents of the call
reports.
The call reports duly reviewed and initialed by RHCA/RBH/HCC and RCH/HRA will be
filed in the respective credit files being maintained with the RCADs.
RCAD will follow-up on conditions to be adhered to. If there is an issue it should be
circulated to TL/RHCA and RCH/HRA, respective Business Heads for its resolution.
Bank and Trade Checking
It will be the responsibility of the RCAD to obtain bank and trade checkings required by
the RMs for all cases including renewals and enhancements. RMs will request VMU for
trade checking reports by email and remit vendors charges via credit advice (IBCA) to
VMU. VMU will maintain proper record of payments made to the vendors.
RCAD will submit two months ahead of scheduled revision date, request for Trade / Credit
Checking (Annexure XXXVII) to RMs to get the necessary details (Point of contact,
Name, Address, Contact No. etc.) to enable RCAD to obtain the required credit reports
from outsourced agencies. RCAD will deliver these reports to RMs/TL/RHCAs/RCH for
their information. As the RMs are often in a better position to obtain information about a
customer from its suppliers and competitors who also maintain a relationship with the
Bank, their active involvement in this process and free exchange of the information they
gather about each others customers will be helpful. Negative/adverse remarks in Trade
checking reports should be highlighted to relevant CC.
UBL will also exchange the information regarding its customers on reciprocal basis with
other banks. RCAD will prepare the draft reply consisting of usual information upon the
receipt of written request from other banks and pass on to RMs for their concurrence
before the information is released to the inquiring bank. RCAD will insert a disclaimer
clause The above information is provided in strict confidence and without any
responsibility on part of UBL and its officers in the credit report.
Financial Statements

--- Page 74 of 107 ---

Audited financial statements shall be obtained from every borrower/customer for


analysis/record as per SBP Prudential Regulations and rules and regulations of Central
Banks at overseas centres.
Additionally, semiannually and quarterly unaudited accounts of Public Limited
Companies should be obtained for analysis/review. RCAD to submit missing Financial
Report List to RBH/TL/RHCA/RCH with a copy marked to Country Head CAD and CAD
Head South/North and Central. Annual audited and unaudited semiannual/quarterly
financials to be received within 15 days of SECPs requirements.
In order to identify the risks related to transactions, repayment alternatives or ways out,
financial analysis should focus on:

Performance on historical basis; and


Evaluation of forecasted performance.

Pledge Financing
This short term facility is required to be handled and managed in the following manner:
a) Control of Stocks :
Control of goods under pledge shall only be assigned to Banks own officials or a
mucaddam on Bank's approved panel with good track record.
Head RCAD will nominate/assign the mucaddam for a specific pledge site and will
advise RMs accordingly. A monthly report of mucaddams assigned to various sites shall
be submitted to Country Head CAD.
RCAD will attach most recent stock inspection reports (for pledge and hypo) with SCA.
In addition, RCAD will promptly send stock inspection reports with material issues
including misappropriation of stocks to TL/RHCA/Unit Head and CRM for appropriate
action/instructions to the concerned, to address the issues highlighted in the report.
RCAD will also inform CRM in case periodical inspection of pledged stock is not carried
out as per policy.
Goods will be stored in a separate warehouse situated within or outside the premises of
the factory with unhindered access for the Bank/Mucaddam/Security Guards etc. RM,
RCAD and outsourced inspections to be conducted as per policy.
Pledge in open will require the following:

All stocks should be in gunny bags/in form of cotton bales stored in godowns/ in
open on plinth covered with tarpaulin in an effective manner. Further proper
custory and control of banks representative to be ensured all the time.
--- Page 75 of 107 ---

Raised Plinth should not be less than one foot from ground. Further plinth should
not be in low lying area so that very purpose of raised plinth is not defeated.
In case of pledge in open, specific approval of relevant Senior Risk
Manager/Head CRM will be required.

In case the warehouse is hired, a Letter of Disclaimer (Annexure XXXVIII) will be


obtained with the copy of lease deed/title document to ascertain the ownership. In case
of 3rd party property, lessee will provide the copy of the lease agreement signed by
owner of the property in addition to the above documents.
Banks sign board indicating Goods pledged with UBL must clearly be affixed properly
at each and every warehouse where goods are pledged in a manner that board cannot
be easily removed.
The goods will remain under custody of approved mucaddam or as approved by the
relevant CC.
Stocks will be stored by the borrower with proper stacking to ensure physical verification
by the mucaddam/internal auditor/RCAD or outsourced companies at the time of
inspection of pledged stocks. Bin cards will be placed on each stack and a register for
inward and outward movement of stocks be maintained for each godown.
Delivery of goods will be allowed to the customers from the warehouse against a written
Delivery Order (DO) issued by the Bank duly signed by two authorized signatories either
from RCAD or from Operations where RCAD does not exist. The mucaddam will
generally ensure that the stocks received earlier are released first i.e. on FIFO (first in
first out) basis, unless practically not possible i.e. imported cotton/fiber etc.
All stocks pledged as security must clearly be identifiable. Stocks not under Banks
pledge to be kept in a separate warehouse. In exceptional cases charged and uncharged stocks or goods pledged with other banks may be kept in a same godown
provided these are segregated, stacked and in identifiable position. In such cases these
should be kept at a distance of at least 20 feet from each other.
Pledge of stocks, for items other than those as mentioned in the SCA, will not be
accepted as security.
At the time of annual review the RCAD will ensure that no godown remains under the
management of one mucaddam for more than two years. Mucaddams will be rotated
periodically in the following manner:Godown managed by mucaddam A to be delivered to mucaddam B.
Godown managed by mucaddam B to be delivered to mucaddam C.
Godown managed by mucaddam C to be delivered to mucaddam A.
--- Page 76 of 107 ---

Till such time financing remains outstanding adequate stocks covering the liability (with
margin) shall remain in the custody of mucaddam.
Initial and subsequent stock reports with every movement will be submitted to RCAD
duly signed by Mucaddam and the borrower. Stock report to be submitted at least on
monthly basis, even if there is no movement in stocks. Submission of stock report will
be mandatory at the time of building inventory/delivery of stocks.
b) Selection of Godown :
While taking possession of pledged stocks the RM and mucaddam will ensure that the
Godown :

Is not in a low lying area, river bank or near a canal.


Has direct access without any hindrance.
Does not have too many openings, windows, apertures and ventilators.
Electrification is proper, safe and godown is equipped with fire fighting
appliances.
Keys of godown to remain with mucaddam and his duly appointed godown
keeper.
Locks are replaced after every 6 months.

Outsourced companies shall carry out inspection of pledged stocks as per prescribed
procedure and shall provide inspection report to RCAD within 15 days. Copies of the
stock inspection reports highlighting the issues, if any, will be provided to the respective
Business Groups by RCAD. The RM/TL/RHCA/RCH will address these issues
immediately or in their periodical site visits as the case may be. RM/TL/RHCA will
conduct site visits at least once a year. The cost for inspection of stocks will be borne by
the customer. Concurrence of the outsourced company for site visit cost is to be
obtained before assigning the job of inspection.
In addition to prescribed stock inspection frequency, stock inspections will be conducted
whenever misappropriation and/or abnormal changes in the required level of stocks is
noticed by RCADs.
Contents of the Stock Inspection Report
Stock inspections provide us an opportunity not only to assess the adequacy of stocks
securing our exposure, but also to monitor the following on a regular basis:

Stock break-up;
Quality of collateral;
Evidence of ownership;
Quality of warehousing;
--- Page 77 of 107 ---

Adequacy of fire-protection devices;


Adequate protection from theft/burglary; and
Status of insurance policy.

Outsourced company should verify/comment on value and quality of stocks (Annexure


XXXIX).
c) Margin Requirements
Stocks will be valued at current market price as quoted in daily Business
Recorder/approved publications or rates sheet circulated by CAD whichever is less,
excluding FED and other Government duties/taxes/levies etc. In case rates are not
quoted, the cost price will be the benchmark for valuation. Rate of local commodities will
be monitored by CAD and circulated to all concerned.
The value of goods, held under pledge, shall always be equal to or exceed the
outstanding facility plus the margin prescribed by SBP or as approved by CC whichever
is higher, with the condition to top-up the shortfall if margin is eroded by 25% and sellout
if margin is reduced by 50%. The sellout will require approval of Senior Risk
Manager/Head CRM.
If the margin is eroded by 25% or more, RCAD will immediately notify the business
chain involved in the recommending process for top up within 7 days keeping relevant
CC in loop.
Insurance:

Insurance must cover all standard and related risks (including fire, burglary and
theft);
Insurance policy shall be obtained from Bank's approved Insurance Company;
Insurance policy shall not exceed the Per Party Limit prescribed for the Insurance
Company. Exception, if any, shall require approval of FIG/Insurance Committee;
Insurance policies with premium paid receipts will be lodged with the RCADs.
For customers with ORR 4 or better, a premium payment certificate is also
acceptable, whereby the insurance company confirms receipt of premium
payment or confirms that premium payment is guaranteed and is being received
as per the insurance companys arrangement with the customer;
Insurance policies will require renewal before their expiry dates. Premium paid
receipt (or premium payment certificates for CBG ORR 4 or better companies)
evidencing premium payment to the company shall always be kept on record;
and
Confirmation of premium paid receipts, undertaking, and genuineness of the
insurance policy to be obtained from the Regional Office/Head Office of the
insurance company.
--- Page 78 of 107 ---

In cases where the customer has an agreement with the insurance company to pay the
premium on quarterly, semi-annually, or yearly basis and the insurance company is not
able to issue a premium paid receipt (which is a mandatory requirement), RCAD may
issue DAC subject to written request raised by the Business along with undertaking
from the insurance company on prescribed format (Annexure XXXX A). This will be
applicable for only those borrowers who have ORR 5 or better. For borrowers who have
ORR 6 or worse this exception will be approved by HCP. This will also be applicable for
insurance of goods imported under LCs.
Insurance policy generally expires on 30th June or 31st December and it often takes
time to get the renewal in place prior to the expiry of the current policy. In such cases,
Business will arrange a cover note from the insurance company as provided in the
Annexure XXXX B. The cover note should be for a period of minimum 30 days.
Waiver of Terrorism Insurance Policy (RSD, RFD and SEC):
Customers frequently request waivers of Terrorism Insurance due to high premiums
being charged by Insurance Companies by virtue of very less re-insurance
arrangements outside Pakistan are available for this risk.
Simultaneously, it is also noted that the customers have made significant in house
arrangements to cater to this risk. Therefore based on the above following instructions
shall be applicable.
Proposing such waivers will require submission of proposal. RMs are required to
mention such waiver requested in the proposed section of SCA and provide the
following information in the SCA:
1.
2.
3.
4.
5.
6.

Location and premises details;


Distance from major highway of the country;
Distance from main railway line of the country;
Security and camera monitoring arrangements by borrower at the factory;
Level of boundary walls of the factory; and
Site visit report by TL/Unit Head confirming point (4) and (5) above.

Approval Levels:
Waiver of Terrorism Policy shall require approval of the following:
1. For customers rated ORR 5 or better - relevant level of CC
2. For customers rated ORR 6 or worse - Head Credit Policy in addition to the relevant
CC.
In case where Banks charge on land and pro-rata value assigned to UBL covers the full
exposure of the Bank then CC will approve waiver of all cases along with SCA. Also,
--- Page 79 of 107 ---

once waiver of terrorism insurance is approved by the competent authority this would
not require approval at the time of renewal if no enhancement or no overdues are
present.
RCAD to ensure that:

Insurance policy/cover note shall be made out in the joint names of UBL and
borrower with the condition that UBL will be the Loss Payee;
Value of insurance to be adequate to cover Banks exposure. (Exposure is
calculated by including margin on the facility amount);
Banks share will be mentioned in case of joint insurance policy unless exempted
by CC;
Amount insured by the insurance company is within approved per party limit;
In case of co-insurance, share of each insurance company is authenticated by coinsurers;
A copy of Insurance Policy Review Sheet is forwarded to Relationship Management
for their review and ratification (in case of any discrepancies);
A separate file is maintained for insurance policy of each customer, along with the
confirmation;
Copy of insurance policy is scanned to database, along with policy confirmation
certificate from insurance company;
A comprehensive tickler/diary be maintained regarding expiry dates of insurance
policies;
Letter for Renewal of Insurance Policy to be sent to the customer, jointly signed by
RCAD and the relationship management, at least one month prior to expiry of the
insurance policy; and
In case pledged goods or mortgage of land does not cover the loan facility extended
including margins required, hypothecated goods/plant building and machinery will
also require insurance coverage.

Exceptions to the above, if any, will require approval of Head Credit Policy.

Customers Stock Report


The stock report of hypothecated goods submitted by the customer should be checked
and signed by respective RMs before delivering to RCADs. Outsourced Companys
stock report will be counter signed by RM. Where customer fails to submit the stock
report, RM is required to follow-up through reminder letters. Facility to be blocked if
stock reports for more than two months are not provided by the customer.
Aging of receivables
Where financing has been extended solely against receivables, statement showing
aging of receivables will be submitted to CAD and CRM on monthly basis. However, in
--- Page 80 of 107 ---

cases where receivables are a component of current assets, aging will be submitted to
CAD and CRM at least on biannual basis or as required by CC. Exceptions shall be
approved by CC.
Site Visits
The periodic site visit reports on ongoing projects will be placed in the credit file. SCA
package must contain site visit memoranda. It will be preferred if such site visits are
conducted as close to the annual review cycle as possible. Site Visits must be
conducted as per the following arrangements:
Site visits framework
Industry
cycle
RCAD
Outsourced
Business
(RM/TL/RHC
A)

Normal
Hypo
4* (Quarterly)
-

Pledge
4 (Quarterly)
4 (Quarterly)
1

Seasonal (Sugar, Rice, Cotton


Ginning etc.)
Hypo
-

Pledge
2 (Biannually)
2 (Biannually)
1

*Physical verification of security/collateral will essentially be required for cases above Rs. 10Mn only. However, verification of
hypothecated stocks will also be arranged for cases below Rs. 10Mn, if required by CRM.

Site visit report must include specific remarks on pledged/hypothecated stocks, their
condition, movement and general environment of the unit. In case of pledged stock,
outsourced company will verify quality and quantity of stock reported on muccadams
last stock report provided to RCAD.
It is emphasized that site visits do not mean calls on borrowers senior management
personnel in their offices, but are supposed to be extended to the place(s) where
borrowers core business activities actually take place; be it a construction site or a
factory.
Guidelines prescribed in the respective PPMs shall be followed for stock inspections of
cases falling under PPM.
Collateral Valuation
All collaterals will be subject to periodic valuations to monitor the adequacy of margins.
Volatile securities/commodities held as collateral will be valued by the RCAD on at least
weekly basis and shares on a daily basis by Market & Treasury Risk to calculate the
drawing power limit. In case the current margin coverage is less than the margin
required, RCAD will adjust the Drawing Power Limit (DPL) proportionately. RCAD will
issue memos to the respective Business Unit RMs informing them of this action. The
--- Page 81 of 107 ---

DPL will be reinstated upon replenishment of security. RCAD/MTR shall ensure that
SBP guidelines on valuation of properties/assets/shares are complied with.
Desktop Evaluation
Credits up to 10Mn
To be conducted by RM as per prescribed format (Annexure XXXXI A)
Credits Above 10Mn up to 100Mn
To be conducted by RM or Banks approved evaluator as per prescribed format
(Annexure XXXXI A and XXXXI B)
Credits above 100Mn
To be conducted by same evaluator who conducted Full scope evaluation as per
prescribed format (Annexure XXXXI B). In case the evaluator ceases to exist on the
Banks panel, Desktop evaluation is to be conducted by another approved evaluator
nominated by RCAD after obtaining CCs approval.
RMs are required to attach a copy of Desktop Evaluation at the time of routing the SCA.
However, in cases where the SCA is not due for renewal and desktop evaluation leads
to decline or substantial increase in value, RCAD must notify Business and relevant CC.
RCAD has to ensure that full scope valuation is carried out by Banks appoved
evaluator before the expiry of three years from the date of last evaluation (Four years
only for open plot of land, and where building is constructed, separate valuation of land)
and at the time of classification, full scope classification is not more than one year old.
RCAD will initiate the process two months ahead of scheduled revision date and ensure
that the DAC is not issued without a valid valuation.
The evaluation report should contain the determinant factors of FSV as required under
Prudential Regulations. Furthermore, Prudential Regulations shall be followed for taking
FSV benefit and provisioning for NPLs.
Insurance coverage of building is required in cases where land does not sufficiently
cover the loan amount and required margin.
Documentation Verification
RMs will be required to inspect physically the security and support documentation
pertaining to their accounts at the time of each annual review. Evidence of compliance
with this requirement will be recorded on the credit approval document and by
--- Page 82 of 107 ---

completing a documentation check list. RCAD will withhold the issuance of DAC until
the provisions of this condition have been satisfied.
RCAD will ensure that legal opinion of approved lawyer confirming completeness and
enforceability of legal documents in respect of NPLs as well as regular loans is obtained
prior to issuance of DAC. RCAD will also ensure that latest search reports are
essentially obtained for each case.
Drawing Power Limit Calculation
RCAD will be responsible for calculation of Drawing Power. RM will submit customers
request for release of pledged goods to RCAD.
RCAD will verify the signature and check the outstanding balance in the system. If
drawing power is available, RCAD will issue the Delivery Order (DO) to Mucaddam.
However, it will be the responsibility of RMs to make sure that adequate stock is
available to meet the purpose for which working capital finance is approved. RMs will
also ensure that stock reports are received in time. Moreover, RCAD will remind RMs if
stock reports are not received on due date.
7.1.2 Maintenance of Credit Information
1. Credit Files Maintenance

A credit file will be maintained for each credit relationship as well as for
customers about whom unfavorable information is on record;
Maintenance of the files in good order, the control of their movement and the
accuracy of filing will be the responsibility of RCAD;
Except when not warranted by the volume of filing material, credit files will be
sub-divided into sections such as Credit Approvals, Financial Information,
Correspondence and other subjects as required;
All information of an adverse nature will be marked for permanent retention and
for future reference;
Credit files are of confidential nature. All Charge Documents/Control Documents,
Security Documents and title deeds must be kept in lock and controlled in fire
resistant cabinets and must not be removed from the Banks premises. If credit
files are required, RM will return credit files promptly to RCAD. Credit Files
should be under proper lock and control in Steel Almarih/Cabinet in joint custody;
and
Following ticklers (due date diaries) to be prepared and reviewed by the RCAD
on Monthly Basis and shared with RBH/RCH/HRA/CRM :
a) Expiry of Credit Lines;
b) Financial Guarantees;
c) Expiry of Financial Guarantees;
--- Page 83 of 107 ---

d)
e)
f)
g)
h)
i)
j)
k)
l)
m)
n)
o)
p)
q)
r)
s)
t)

Stock Reports;
Insurance Policies, Premium Payment Receipts;
Call Memos;
Charge Documents;
CIB, Market and Bank Checking, search reports;
Consortium Customers Outstanding;
Legal Opinions, Valuations;
Deferrals/Waivers Ticklers;
Special Terms & Conditions of SCA;
Mucaddams Rotation;
Inventory Inspections (by RCAD, RMs, Outsourced);
Mark-up Rate (KIBOR) Resets/Fixation;
Any other due diligence;
Customer-wise and Group-wise Commitments, outstandings and ORR;
PDO and EOL report to be provided on a weekly basis;
Customer wise Clean-up monitoring Report;
DAC Status Report;
u) Pledge Monitoring Report;
v) Covenants; and
w) CA log book.
7.1.3 General Guidelines
The purpose of this section is to outline the post-approval policies and procedures and
to ensure the following:

That a transaction is within approved limit in terms of amount, tenor, collateral and
pricing etc. (RCAD/Operations);
That in addition to the credit risk approval process, actual booking of transactions
are duly approved by the authorized officers of the Bank (RCAD/Operations);
That all credit documentation (security/support) are scrutinized for accuracy,
adequacy, completeness and are lodged with RCAD (RM/RCAD);
That all credit documentation and pledged collaterals/securities are effectively
controlled and monitored in line with Banks Policy and Credit Approval (RCAD);
That all customers liabilities are timely and accurately recorded in the books of
accounts and reported in a proper manner for monitoring and controlling purposes
(RCAD/Operations) ;
A central liability record of all extensions of credit for all customers. Identify and
report all past due/non-accrual assets on a timely manner as per policy
(RCAD/Operations);
RCAD will be responsible for the preparation of various credit related reports
required by the senior management and SBP e.g. expired credits, documentation
maturity reminder, documentation deferral, PDO/Non-accrual assets etc.;

--- Page 84 of 107 ---

For implementation of reports generated by RCAD, it will be the responsibility of


TL/RHCA/RCH to review and discuss with concerned RMs the action required in the
reports, finalize the dates for corrective action and advise CRM for information;
CAD being an independent unit, should provide administrative support for the
lending activities of the line management. However, check and balance regarding
correct utilization of limits according to the terms and conditions of approval will be
the responsibility of line management;
It is important and necessary for all concerned to realize that such checks and
balances must be followed in letter and spirit;
Branch Operations will ensure to dispatch the mark-up charged advices to the
customer 5 days after the mark-up due date with the covering letter along with copy
of Markup account statement counter signed by RM;
Operations will highlight any value dated adjustment appearing in mark-up
calculation sheet to RM and RCAD;
Recovery of mark-up, being the main source of banks earning, is the prime
responsibility of RMs;
The documents are renewed in time so that these may not become invalid or time
barred due to Law of Limitation;
RCAD to obtain search report from the concerned office/authority to establish the
free of lien or encumbrance status of the collateral offered (RM/RCAD) through
approved Legal Counsel;
RCAD to highlight CCs comments (if any), irregularities and exceptions to RM for
rectification. Monthly report on exceptions generated by RCAD to be submitted to
Business/CRM/CAD;
Ensure that approvals are promptly communicated to the originating Unit for
implementation (RCAD); and
Reporting settlement of all defaulted accounts, TRs or Acceptances, etc
(RCAD/Operations).

7.2 Annual Review and Renewals


Submission Deadlines
All credits requiring approval from CC must be submitted to the RCAD as follows:
SCAs requiring approval of CC - 5 weeks before expiry date.
All extensions 2 weeks before expiry date.
Temporary Extensions
Temporary Extensions may be allowed as per Credit Policy on the prescribed format
(Annexure XXXXII). Temporary extension memo should be accompanied by CIB report
and Central Liability Report. RCAD will extract CIB Report and submit temporary
extension memo to CRM along with latest CIB Report and Central Liability Report.

--- Page 85 of 107 ---

on of
should
routed

Segment
Retail Bank
Corporate
Bank

Upto 3 months*
Relevant level Risk
Manager/Senior Risk Manager
Commercial/
Risk Manager/Senior Risk
Manager Corporate/

More than 3 months


Senior Risk Manager
Commercial + Head CRM

Extensi
limits
be
by

Senior Risk Manager


Corporate + Head CRM

calculation of months rather than days.


*In case the limit for which extension is required exceeds the credit approving authority of Risk Manager/Senior Risk
Manager, approval from Head CRM would be required additionally.

Chapter 8
REMEDIAL MANAGEMENT
The failure to control loan delinquency, which often leads to default, is probably the
largest single downfall of institutions that provide credit to entrepreneurs; the risk of
--- Page 86 of 107 ---

delinquency and default must be continually addressed. Hence, bank shall make effort
towards early recovery and settlement of non performing/stuck up loans. Remedial
Management process, classification and responsibilities are emphasized below:
8.1 Credit Classifications Responsibility
It will be the responsibility of the RMs to identify weakness or other signs of
deterioration in credits that may call for the adverse classification of an account.
The purpose of adverse classifications is to highlight those credits which represent an
above normal credit risk, to evaluate the degree of risk involved, and to develop a
strategy or action plan for the elimination of the weaknesses or for the liquidation of the
outstanding exposure.
Adverse classifications, when appropriate, are expected to be initiated at any time by
the lending unit or the supervising officers who have immediate responsibility for
managing the relationship. In addition, adverse classifications may be originated by the
CRM or any other risk reviewer or by credit reviewers/auditors. In case of Forced PAD
the outstanding amount will be transferred to Past Due Obligations when transaction
takes place.
8.1.1 Watchlist
These accounts require close monitoring until it is determined whether to formally
classify or de-watchlist the relationship. Customers are to be watchlisted as Watchlist,
Serious Watchlist and Severe Watchlist as defined in Credit Policy.
While watchlisting the account, the RCH/HRA should determine the period for
monitoring the account under watchlist. The reasons for watchlisting should be
documented and specific remedial actions should be approved by one level higher than
relevant level of CC on the attached format (Annexure XXXXIII A). Progress relating to
remedial strategy should be reviewed on quarterly basis on the same format.
To ensure close monitoring of watchlisted accounts, copies of the reports generated by
RCAD should also be provided to one level higher than relevant CC who should keep
liaison with Business Head for the required remedial action by reviewing the progress.
When classification of a borrower is warranted, either of the following categories will be
assigned depending upon the severity of the weakness, determined on the basis of
time and/or event related criteria. To assign the proper classification, the RCH/HRA
must:

Differentiate between symptoms (e.g., margin erosion) and their causes (e.g.,
oversupply, product obsolescence, rising cost).
Assess the borrowers ability to rectify the problem within a reasonable time frame.
--- Page 87 of 107 ---

Consider the options available to the business to improve its position as a creditor.

8.1.2 Adverse Classification


8.1.2.1 Common Characteristics which may lead to Classification
Given below are some general characteristics underlying the categories of classification
in addition to time based classification:
a) Substandard

Clear evidence of adverse changes


Absence of controls (sloppy plant, frequent accidents, badly/ill organized
inventory).
Labour problems.
Lack of management depth and/or key management departures.
Cash draining subsidiaries/excessive inter-company lending and borrowing.
Over reliance on a single product or supplier or customer.
Products subject to intense competition or technical obsolescence.
Over reliance on exports through certain types of currencies which may carry
strong devaluation risks.
Adverse regulatory, political or economic environment.

Financial Performance

Adverse trend in sales and earnings.


Profit margin erosion.
Interim losses.
Fixed price contracts in highly inflationary environment.

Balance Sheet Deterioration

Higher leverage relative to industry norms.


Receivable or inventory excesses (MIS/control problems).
Trade payable slowness.

Transactional

No seasonal line clean-up, lingering excesses over approved cash finance limit.
Term loan covenant violation, (waivers and amendments) without cogent
business reasons.
Unrealistic repayment schedule.
Diversion of loan proceeds.
--- Page 88 of 107 ---

Absence of adequate collateral, if required.

Other

Persistent negative cashflows


Failed syndication or sell-down, reflecting market assessment.
Weak operational or financial controls and internal MIS.
Inadequate or outdated financial data.
Qualified auditors opinion.
Material litigation.
Material adverse change vis--vis the rationale employed for the original risk
decision (financial performance under plan, change in ways out, loan to value
ratios, collateral, etc.)
Credit lines frozen at other banks due to deteriorating credits legal action etc.
Bank locked in due to lack of alternative funding source.
Ineffective creditor coordination.
Debt restructuring required.
Bankruptcy, foreclosure, forced liquidation.
Where mark-up/interest or principal is overdue by 90 days from the due date. .

b) Doubtful

Same characteristics as above but more adverse.


Auditors disclaimer of opinion or qualification as to continued viability.
Uncertain collateral coverage.
Negative net worth and working capital.
Trade credit frozen.
Full recovery depending upon improbable events.
Ineffectiveness of borrowers or creditors remedial efforts.
Consistent failure to meet commitments.
Where mark-up/interest or principal is overdue by 180 days from the due date. .

c) Loss

Quantified collateral shortfall.


Build-up claims and litigation that will limit recovery amount.
Where mark-up/interest or principal is overdue by one year days from the due
date and Trade Bills (Import/Export or Inland Bills) are not paid/adjusted within
180 days of the due date (trade bills will directly fall under loss category in case
of non payments within 180 days);
Business continuity is questionable.

8.1.2.2 Subjective Classification:


--- Page 89 of 107 ---

Bank can subjectively classify a customer or a facility of customer even if it is not due
outstanding for 90 days. This will be CC judgmental call based on deteriorating factors
of credit.
8.2 Classifiable Exposure
Credit classifications are applied to obligor as well as to credit facilities or portions of
credit facilities approved under the rules. Any type of credit facility direct or contingent,
may be classified.
8.3 Excluded Credit Exposures
FBP Bank Risk and settlement risk are not added to total facilities for approval under
the rules. However, these credit exposures are also subject to classification, if required.
8.4 Initiating or Changing Adverse Classifications
The RM initiates a change of classification by preparing a Classification Memorandum
(CM) as per specimen attached (Annexure XXXXIII B). For Retail Banking these memos
should be routed through Head Retail Assets/Group Head Sales upto Rs. 25Mn and
GE- RB exceeding Rs, 25Mn for approval of one level higher than the required level of
CC. However, for CBG, these memos will be routed through RCH and GE-CBG. If the
CM is not raised within 30 days of system based account classification, Subjective
Classification, or BRR downgrades ORR (7 to 10 and above), then no debit will be
allowed in any of the credit lines being availed by the customer.
While preparing the CM, the RMs must clearly mention all the facilities being availed by
the customer. This will enable the bank to review the credit on a holistic basis and timely
remedial action could be initiated to protect the banks interest.
8.5 Remedial Action/Strategy
Prior to initiation of classification, the RM will establish an immediate contact with the
customer to obtain necessary information aimed at:
a) Assessing gravity of the situation and
b) Determining the appropriate classification category.
The RM will be required to exercise due diligence in the following sequence: Assess the collateral by arranging its fresh forced sale valuation by a banks
approved Evaluator to determine the residual value.
Arrange review of the credit documentation/securities by the CLC
nominated/approved legal counsel, if necessary, to determine accuracy and
enforceability of the securities.
--- Page 90 of 107 ---

Monitor further facility utilization in the accounts and consider blockage of the
unutilized lines depending upon the situation.
Obtain fresh credit checking and CIB report in order to verify the position of
customers outstanding overdues with other banks.
Analyze the latest financial position of the borrower vis--vis his overall liabilities
in order to determine his capacity to settle the obligations.

The typical focus of the remedial strategy in each classification category is:
Substandard
Prompt corrective action is required to strengthen the Banks position, reduce exposure
wherever possible, and to ensure that adequate remedial measures are taken by the
borrower.
Doubtful
Vigorous remedial action is required. Result oriented efforts should be effective within
twelve to eighteen months.
Loss
Responsible units should continue a vigorous collections effort until no further
repayment is possible and efforts are formally abandoned.
8.5.1 Formal Action Plan
In the CM, the action plan will be clearly spelled out which will necessarily be
addressing the following:

An explicit decision to stay or exit.


Clear benchmarks to trigger reclassifications or declassifications.
Timeframe for achievement of targeted progress.
Strengthening of security/support.
A realistic repayment schedule agreed by the customer.

8.5.2 Documentation Review


As soon as an account is classified all the related documentation and collateral be
reviewed and necessary formalities be completed as needed by a CLC
nominated/approved legal counsel as a pre-requisite for deciding among alternative
courses of corrective action.
8.5.3 Classified Credit Reviews (CCRs)
--- Page 91 of 107 ---

If the credit continues to deteriorate, the RMs/TL/RHCAs must follow developments


closely, compare them with the established benchmarks, and take alternative measures.
This remedial management review must be formally documented in a CCR (SCA shall
not be required for such credits unless the account is being restructured), including
downgrades by BRR (as per specimen attached Annexure XXXXIII C) For Retail Bank,
these memos should be routed through Head Retail Assets/Group Head Sales upto
Rs. 25Mn and GE- RB exceeding Rs, 25Mn for approval of one level higher than
required level of CC. However, for CBG, these memos should be routed through RCH
and GE-CBG.
CCRs should record the following:

Amount of classified facilities.


Reason for classification.
Summary of the remedial strategy vis--vis the customer.
Stay/leave decision.
Action plan to achieve this strategy.
Current performance against the plan.
Record legal action taken.
Indication of whether the credit has strengthened, weakened, or remained the same
since the last report.

For classified credits only CCRs are required and all details need to be incorporated in
this. SCAs will only be required for regular customers.
Frequency of reviews
The frequency of formal reviews will be as follows:
a) Accounts managed by Business Units, other than SAM:
Substandard
Once in two months
Doubtful
Quarterly
Loss
Semi-annually
b) Once the account is transferred to SAM in the doubtful/loss category. CCRs will be
submitted for review as under:
NPLs Rs.1.0Mn to Rs.10Mn Annually
NPLs exceeding Rs.10.0 Mn Semi-Annually
Preparation of CCRs will not be required for NPLs upto Rs.1.0Mn which shall be
handled differently for recoveries. However SAM-CAD will submit quarterly progress
report on addition of new NPLs and recoveries to CRM.

--- Page 92 of 107 ---

Records
To protect Banks interests, readily accessible permanent records with the following
information must be kept for all adversely classified credits by RCAD.

Classification history in chronological order.


History or exceptions to:
Target market criteria
Risk acceptance criteria (RAC)
Credit Policy/Credit Manual
Value of collateral/security.
Gross principal amount due, before any write-offs.
Amount of any write-offs.
Net book value.
Amount of interest/mark-up earned and not collected.
Other related expenses.

8.6 Provisions
Bank will provide for potential losses in the shape of Specific Reserves and General
Reserves:
8.6.1 Specific Reserves
Following shall be the determining factors for final computation of the provisions:

The relevant classification category


The realizable value of liquid assets and forced sale value of mortgaged/pledged
assets
Percentage of residual value of security

Treatment of income and computation of provisions will be as per Prudential Regulation


guidelines of SBP/Central Banks of the respective overseas centers.
Note:
Classified loans/advances that have been guaranteed by the Federal government would
not require provisioning. However, mark-up/interest on such accounts shall be taken to
suspense account (memo account) instead of income account and only be accounted in
income once realized.
1. In addition to the time-based criteria, subjective evaluation of performing and nonperforming credit portfolio shall be made for risk assessment and where considered
necessary the category of classification determined based on time-based criteria
--- Page 93 of 107 ---

shall be further downgraded. Such evaluation shall be carried out, among others
based on adequacy of security inclusive of its realizable value, cash flow of
borrower, operation in the account, documentation covering advances and credit
worthiness of the borrower, etc.
2. The rescheduling/restructuring of non-performing loans shall not change the status
of classification of loans/advances etc. to regular, unless the terms and conditions of
rescheduling/restructuring are fully met for a period of at least one year (excluding
grace period, if any) from the date of such rescheduling/restructuring accordingly or
as per requirements of SBP/ Central Banks of respective overseas centers. The
status of classification as well as provisioning will not be changed merely because of
the fact that a loan has been restructured or rescheduled. However, if a loan has
been frequently rescheduled/restructured it can be subjectively classified or the
classification can be further downgraded by one level CC if deemed necessary.
Rescheduling/restructuring must not only be done for adjustment purpose.
3. Bank will be guided by the following uniform criteria for determining the realizable
value of liquid assets and forced sale value of mortgaged/pledged assets.
4. If no restructuring/rescheduling is done for a classified loan/borrower such
loan/borrower will become regular upon clearing of all past dues as per PR.
Only assets having registered mortgage, equitable mortgage (where NOC for creating
further charge has not been issued by Bank) pledged assets and liquid securities shall
be considered. Assets having pari-passu charge shall be considered on proportionate
basis.
Hypothecated assets and assets with second charge and floating charge shall not be
considered.
An independent professional Evaluator, who should be listed on the panel of Evaluator
maintained by the bank, shall carry out valuation.
For provisioning requirements the guidelines provided by SBP/Central Banks of
respective overseas centers are required to be followed as a minimum both for level of
classification and benefit of collateral/security FSV.
Head CAD will nominate, amongst the approved Evaluators and assign valuation of
assets, where necessary to Evaluators with the instructions that their report must take
care of all essential aspects for determining the forced sale value. For this purpose, the
Evaluators must verify relevant aspects such as nature of locality, salability,
encroachments, etc. and not merely apply the discount factor.
If it is impossible to get right of way for the evaluator to enter the premises due to non
cooperation of the borrower then the last available valid evaluation will be used.
The categories of mortgaged/pledged assets to be considered for valuation along with
discounting factors to be applied would be as under (no other assets shall be taken into
consideration): --- Page 94 of 107 ---

a) Liquid Assets:
Valuation of Liquid Assets, excluding pledged stocks which are dealt with at (d)
below, shall be determined by the bank. However in the case of pledged shares
of listed companies value will be taken at market value as per active list of Stock
Exchange on the balance sheet date. Moreover, valuation of shares pledged
against loans/advances shall be considered only if these are with CDC,
otherwise these will not be admissible for deduction as liquid assets while
determining required provisions.
b) Land and Building:
Valuation of land and buildings would be accepted as determined by the
Evaluators in accordance with the criteria given at point (iii) above and no further
discounting factor would be applied on forced sale value determined by them.
c) Plant and Machinery:
FSV for Plant and Machinery may be determined for provisioning as per
guidelines issued by SBP.
d) Pledged Stocks:
In case of pledged stocks of perishable and non-perishable goods, forced sale
value will be assessed by Evaluators, which will not be more than six months old,
at each balance sheet date. The goods will be perfectly pledged, the operation of
the godowns will be in the control of the bank muccadum and regular valid
insurance and other documents will be available. In case of perishable goods the
Evaluator will also give the approximate date when these are expected to be of
no value.
For valuation of mortgaged/pledged assets, the SBP prudential guidelines shall be
adhered.
5. Investment and Other Assets
Subjective evaluation of investment portfolio and other assets shall be carried out by the
bank. Classification of such assets and provision required shall be determined keeping
in view the risk involved and the requirements of the International Accounting Standard
and SBP prudential guidelines/ Central Banks of respective overseas centers.
8.6.2 General Reserves

--- Page 95 of 107 ---

In addition to Specific and other statutory reserves, the President and the BOD will
consider creation of General reserves depending upon following broad factors:

The level of growth of assets.


Higher than normal profits generated.
Adverse change in the loss norms.
Degree of volatility at the Macroeconomic level.

8.6.3 Frequency
Specific reserves will be created in the Banks books by Finance Division on quarterly
basis/or as per the SBP prudential guidelines/Central Banks of respective overseas
centers, on receipt of quarterly summary of required provisions from the Country Head
CAD.
The level of General Reserves will be determined by the President and approved by
BOD on annual basis or as and when required. Finance Division will pass relevant
accounting entries and ensure their reflection in the Banks financials.
8.7 Responsibility/Reporting

RCADs will maintain and update information in respect of the classified credits
including the outstanding amount advised by the respective Branch operations.
Head RCADs will arrange fresh valuation of securities held, in line with the SBP
directives.
Based on approved CM and on the valuation of securities provided by RCAD,
Finance Division will compute the amount of provision required and work out the
net NPLs.
RCADs will submit consolidated classified exposure report on prescribed format
(Annexure XXXXIV) to Finance Division quarterly.
Finance Division will pass the relevant accounting entries.
Finance Division will submit consolidated quarterly statement to The Banking
Supervision Department of the SBP on the prescribed format in addition to the party
wise annual statements.
Finance Division will arrange external audit of the provisions for incorporation in the
annual audited accounts of the Bank as per SBP directives.

8.8 Special Assets Management


8.8.1 Transfer of Accounts to SAM/SAM RCADs
All relationships classified as Doubtful or Loss, are required to be transferred to SAM
whereby timelines for transfer to be jointly agreed by business group (where it is
residing) and CRM. However, in cases business may decide to retain NPLs, where they
--- Page 96 of 107 ---

feel that they will be able to recover outstanding dues themselves. Classified cases
(Doubtful and Loss accounts) which are retained by business must be reported on
quarterly basis for review of Head CRM and Head Credit Policy.
Additionally, the relationships with higher degree of risks classified as Substandard may
be transferred to SAM for management when it is determined by CRM and Business
that the Business Group responsible for the account, that the group is no longer in a
position to manage these non-performing loans in the manner originally intended.
Doubtful and Loss cases which are retained by business must be reported in Credit
Review which will be reviewed by GE-R&CP & GE-SAM.
The purpose of such transfer to SAM is to:

Implement the Remedial Management guidelines provided by the Banks Credit


Policy/Manual.
Best utilize the credit/workout expertise available with SAM.
Enable key Business Groups to focus on the business development.
Centralization of NPLs and Security Support Documents in designated branches and
SAMCADs respectively.

8.8.1.1 Procedure for Transfer of NPLs

All relationship Classified as "Doubtful or "Loss" will be transferred to SAM as per


policy.
Filing of recovery suit and criminal complaint (if required) should be done in
consultation with Legal Division.
RCAD to ensure completion and perfection of facility and security documents before
filing legal suit.
Relationship Transfer Memo (RTM) only for principal amount of an NPL, duly
supported by CM and other related formats shall be raised and jointly signed by
RM+Unit
Head+
RCH+GE-CBG
for
CBG
customers
and
TL
+
RBH/RCH+GM/HCA+GH-Sales/GE-RB for RB customers. These will be submitted
to Divisional Head SAM for acceptance and subsequent concurrence of Head CRM.
RTM and other formats are attached (Annexure XXXXV).
Principal amount would include amount of finance actually outstanding and perforce
payments (like SBP Penalty etc.) if any.
Markup outstanding (if any) and markup in memo account shall be reversed at the
Branch concerned after receipt of IBCA for principal amount from the relevant SAM
Branch.
Classification of all relationships to be reviewed as per SBP Prudential Regulations
and also reconciled with classification as per internal / external / SBP Auditors, BRR
etc. and where downgrading is required it should be done immediately.
A checklist along with Statement of Account, Security Documents and Customer File
will be sent to respective RCAD SAM for issuance of IBCA.
--- Page 97 of 107 ---

8.8.1.2 SAM shall be responsible for following:

To recover banks outstanding amount in maximum possible way.


Review of Security Support Documents and Identification of discrepancies by
respective SAMCADs.
Accounts will be handled by RCADs where SAM has no presence. SAM Recovery
Officers / Managers / Court Coordinators will attend the Courts for cases. However,
RCAD Staff to attend court proceedings at locations where SAM has no presence.
Submission of Monthly Reports for the progress of the cases to SAM / Legal
Division.
Proper nomination of counsels for each sub-judice case by the Legal Division.
Ensure attendance of the courts by dealing counsel on each hearing and submission
of progress report.
Close Liaison with dealing lawyer and review of the Cause List containing details of
next hearing.
Compliance of the Courts requirements.
Release of Original Documents for production and examination by the Court.
Preparation of list of all NPLs identifying cases where suits have not been filed and
to arrange filing of suits for such cases after obtaining due approval from CC/ SAM
Division.
To perform function as custodians of Credit Files and Documentation.
To monitor release of documents as per Banks Policy.
To prepare MIS Data of all SAM Accounts as per prescribed formats.
SAM to handle, negotiate and settle NPLs of Yellow Cab / Ex-Staff. However, RCAD
to perform the said function where SAM has no presence.
A checklist along with Statement(s) of Account, Security Documents and Customer
File will be sent to respective RCAD SAM for issuance of IBCA.

8.8.1.2.1 Other Functions

Extension of support and assistance to Consumer Collection for the achievements of


their goals and assignments
Update PAD Returns on quarterly basis.
Tracking of recoveries coming through courts.
Preparation of write-off proposal for abandoned cases.
Filing of Suits by respective segments for fresh NPLs after due approval of the
Senior Risk Manager and clearance of CLC.
Compliance/Implementation of CAD related Policy matters regarding Remedial
Management.

8.8.1.3 Actions to be taken by SAM and SAM CAD:

--- Page 98 of 107 ---

After approval of RTM, SAM CAD would take custody of all original documents,
credit files and relevant records etc. and would authorize the SAM Branch to park
the liabilities and issue IBCA in favor of the Branch concerned.
Once the liabilities are transferred and parked at SAM Branch, SAM shall advise
FINCON to transfer the specific Provision held to SAM Branch immediately.
Upon transfer of the accounts at SAM Branch, SAM would directly approach the
borrowers and devise strategy for expeditious recovery / settlement.
PAD position issued by FINCON will be reviewed on quarterly basis for conducting
the exercise of specific provision required matching to the outstanding liabilities as
per Prudential Regulations. Excess provisioning due to recoveries made at SAM
shall be transferred to RB as Reversal of Provision through and with the approval of
FINCON. However, for other business groups all recoveries will remain with SAM.
Recoveries made by SAM would first be appropriated towards adjustment of the
liabilities outstanding at SAM Branch. All recoveries made by SAM in excess of the
liabilities booked at SAM Branch would be transferred back to RB instead of taking
such recoveries to SAM mark-up income account or Gain on NPLs. However, for
other business groups all recoveries will remain with SAM.
SAM would make all out efforts to recover entire amount of dues legally recoverable
from the borrowers including tracing out their realizable hidden assets for attachment
and their execution. However, any shortfall in Provisioning or loss on NPLs at the
time of conclusion of the case would be passed on to the RB through and with the
approval of FINCON.

8.9 Recovery Process


Immediately after problem recognition, it will be determined whether causes of the
problem are based on willful or non-willful intentions of the customer. In the case of
willful default the exit strategy will be compulsorily pursued which would necessarily
entail recalling of the outstanding and initiation of legal action (civil suit or criminal
action) in case of failure of the customer to:

Partially settle up-front


Agree on acceptable repayment schedule and
Agree to rectify the causes of problem.
Locate absconding defaulters and/or trace hidden assets of the borrower.

The exit strategy would involve the recalling of the outstanding and initiation of legal
action including filing of references of willful default under National Accountability
Bureau (NAB) ordinance through SBP.
In cases of non-willful inherent intentions, efforts will be directed towards revival of the
account. This process will broadly include:
1. Recovery of overdue mark-up and/or principal
2. Strengthening of security/support and
--- Page 99 of 107 ---

3. Ensuring adequacy of cash flows to keep the account current in future through close
monitoring of the account and if required re-scheduling/restructuring may be
considered.
The recovery process for each account will be reviewed and approved by relevant CC.
8.9.1 Traditional Work Out Modes
To achieve the objective of early realization of problem credits bank may opt for
rescheduling/restructuring based on the nature and gravity of the situation, best suited
to protect the Banks interest.
8.9.1.1 Rescheduling/ Restructuring
Policy
The Banks policy of rescheduling/restructuring of loans is based on the principle of
granting concessions/reprieve that it would not otherwise consider in respect of
borrowers whose accounts present problems due to economic or legal reasons.
However, before setting out to consider any concessions, the position vis--vis.
Following needs to be ascertained first:

The default is not willful, i.e. the borrower is not misrepresenting actual facts with the
purpose of securing concessions.
The borrower has a viable business plan for the future, as demonstrated by financial
projections; such projections are to be thoroughly examined to assess the validity of
assumptions used and the veracity of cash flows projected.
The management, despite the initial setback (due, normally, to external factors) has
a demonstrated competence/ability to run the business profitably in the future.
Willingness and ability of the sponsors to participate in a rescue program preferably
by injecting fresh equity or sponsors/subordinated loans to demonstrate commitment
to the business, and make the whole exercise a meaningful one.
Where other financial institutions are involved, or in case of a syndicated loan, other
lenders must agree, in writing, to the proposed rescheduling/ restructuring.
There should be reasonable down payment to indicate the seriousness of the
management towards the proposed plan.
It is emphasized that rescheduling/restructuring is not intended to defer identification
of problems and consequent misrepresentation/ misclassification of risk and it
should not be done simply to break time frame and to allow unwarranted
improvement in the classified category of the loan.
Normally, rescheduling/restructuring proposals will not be considered unless the
proposed plan results in substantive improvement in the Banks risk. This may be
achieved through enhancement of security/collateral or through injection of fresh
equity (or equivalent) or a combination of these.
--- Page 100 of 107 ---

General Guidelines:

Revaluation of assets, even when conducted by SBP approved firms, does not in
any manner make it imperative upon the Bank to accept thus improved financials.
Risk Managers, while conducting their analyses, should in any case base these
upon realistic values and not merely upon accounting values.
Wherever, necessary and efficient, services of specialists (chartered accountants,
surveyors, technical experts) may be outsourced to complement expertise available
within the Bank to arrive at a decision. In other cases, the repayment schedule
agreed upon should be based upon the cash generation capacity of the unit,
sponsors ability to inject funds into the business, and the remaining economic life of
the business (plant and machine, in case of manufacturing concerns).
When rescheduling/restructuring packages are being put in place, perfection of legal
documentation and rectification of flaws in charges/mortgages (if required) by the
obligor should be made a precondition.
Where the restructuring package for a business involves a change in
sponsors/management, due care should be exercised to ensure that the incoming
management has integrity, the capability to successfully manage the business and is
considered credit-worthy.
Personal Guarantees of outgoing directors should not be released until and unless
proper security for the outstanding amount of the loan including Personal
Guarantees of the incoming directors is obtained.
Rescheduling/restructuring in litigation cases should be implemented through the
court except otherwise advised by the lawyer due to legal or other reasons (in the
interest of the Bank).
At all times relevant SBP Prudential Regulations must be adhered to unless specific
waivers are obtained from the SBP or exceptions approved by competent authority.
Even when such waivers are available, unless they are specifically stated to be
given for an indefinite period of time, the Banks position/ liability after expiry of the
said waiver and in the event that the borrower is unable to rectify the breach must be
clearly determined and the extent of risk clearly identified and approved at the
appropriate level.

No incremental financial accommodation (fund based or non fund based) shall be


granted to the borrower who has been given financial relief in the shape of mark-up
waiver for more than three years as part of the restructuring package. Any exceptions
would require the approval of GE-R&CP.
8.9.2 Non Traditional Work Out Modes
The bank may come across situations when pursuit of non-traditional workout strategies
such as Debt Asset Swap may be preferable to achieve the desired results. Such
options will be exercised subject to presence of the preconditions including the
following:

--- Page 101 of 107 ---

The repayment of the loan is behind schedule.


The reasons for non-repayment are genuine and considered temporary.
Strong possibility of improved profitability and cash flows in future.

8.9.2.1 Debt Asset Swap


Approval process
As a pre-requisite all DAS transactions need to be approved by Real Estate Committee
(REC) after approval from CC.
Thorough due diligence is to be conducted prior to execution of DAS. After CC approval
for DAS mode of work-out, the case is to be presented to the REC for approval. The
Real Estate Department shall be responsible for coordinating for final REC approval and
execution of DAS. Subsequent to CC and REC approvals, the case shall be presented
to BRMC in circulation for approval. Post BRMC approval it shall be sent to BOD for
approval in the next meeting if required. For Debt Asset Swap cases, following approval
grid shall be followed:
Amount
Upto Rs. 49.9Mn
Rs. 50Mn and above

Approved by
CC+REC+ President
CC+REC+ President +
BRMC+BOD

To further strengthen enforceability, DAS may also be carried out through a Consent
Decree with properly worded default clause in case of a buyback arrangement.
Requirements
Full Scope evaluation by at least two independent pre qualified property evaluators, on
the panel of the Bank (to be arranged by business) shall be considered for ascertaining
the purchase price. Valuation reports must not be more than 6 months old. In some
instances, the bank may pay for the cost of title transfer in banks name. This estimated
amount shall be included in approval presentations. In case of disparity in evaluation by
more than 15% a third independent evaluator may be called and the decision shall be
based on best two outcomes.
Properties with complete chain of documents, transferable title, free from all kinds of
liens, encumbrances, litigation and third party claims, shall be considered by the CC for
recommendations to REC. Additionally CC may however, recommend proposals where
liens, encumbrances and litigation of other lenders are removable (Subject to clearance
with consent of other lending).
Legal opinion
--- Page 102 of 107 ---

The actual transfer of property and due diligence should be supported by input of CLC
which will refer to all rules and regulations issued by SECP, Companies Ordinance and
Banking Ordinance for compliance.

Monitoring
a) Buyback agreements
Post agreements, updates on activities are to be monitored by CRM/RCAD and
exception to the agreed arrangement shall be highlighted to GE-R&CP immediately.
b) Execution of cases which have other lender liens, encumbrances and litigation
Every case should have a timeline and any deviation shall be highlighted to GE-R&CP.
Defaults post agreements
Defaults post agreements (in case of buyback) will require proper reasoning/justification
from the customer and may require the bank to reinstate banks right on all obligations
prior to the arrangement.
8.9.3 Litigation
Process Flow
If all efforts fail, the bank may opt for litigation. Following procedure shall be followed
prior to litigation:

Negotiate/persuade the borrower to repay;


Warn the borrowers of our intention to initiate litigation including filing of criminal
complaint/FIR and explain its consequences;
Assess legal standing and possibility of recovery;
Arrange issuance of legal notice within stipulated time from default;
File recovery suit at the appropriate legal forum through banks approved lawyer;
and
Involve guarantors in the legal suit if their personal guarantees are available.

8.10 Write-offs
8.10.1 Write-off Mechanism
The concerned RM/Business Unit and SAM/RCAD will initiate the write-off proposal
highlighting therein:

--- Page 103 of 107 ---

a) Historical background of the events including classification forming basis for the
write-off.
b) Amount of provision already set aside in respect of the particular statement and the
amount proposed to be charged to the income statement due to short provisioning if
any. The facts on the proposal will be verified by the banks internal auditor as per
SBP/Regulator direction and the write-offs will be approved by the relevant level of
CC.
8.10.1.1 Points to be taken into consideration at the time of write off:

Concept of time value of money to be considered in write-offs.


The credits approved for write-offs will be offset by passing appropriate internal
accounting entries.
The position of write-offs allowed will be reported to SBP/Regulators on the
prescribed format and permanent record shall be maintained by Finance Division.
The credit files and other documents will be consigned to records.
All write-offs cases will be submitted to BOD for information.

8.11 Condonation and waivers


Under various settlement arrangements with the borrower, who is classified,
condonations/waivers
are
required.
Relevant
CC
will
approve
these
condonations/waivers along with approval of write offs.
These Condonations will include:
1. Waiver of markup not in books (in memo account).
2. Cost of funds to be applicable as permitted by the court i.e. remaining costs to be
waived as per court order.

--- Page 104 of 107 ---

tion
4
4.2
4.3
4.3
4.3
4.3
4.3
1
2
2
2

1
1.1
1.1
1.1
1.1
1.1

3
4
11
11
12

1.1
1.2
1.2

LIST OF ANNEXURES
Description
List Of Approved PPMs
Standard Text Of LGs
Letter To Beneficiary Of The LG
Final Letter To Beneficiary Of The LG
Letter To Applicant Of The LG
Undertaking Cum Indemnity
Letter To Applicant Of The LG
Standard Credit Application Package
Simplified Credit Application Package
Minimum Acceptable Current Ratio Benchmark For Various Industry Sectors
Credit Proposal Package For FIRMU
Criteria For Assessing Risk Weighted Limits
Sub-Allocation Memo
ORR - Corporate & Commercial
ORR SME
ORR Individual
Mechanism For Obligor Risk Rating (ORR) For FIRMU
ORR Calculation And Methodology
Facility Risk Rating (FRR)
Credit Approval Authority And Structure
Summary For BOD Review
Approval Of Continuation Of Issuance Of Approved Trade Limits In The Presence Of
Overdue
Documentation - Temporary Release Form
Documentation - Permanent Release Form
List Of Mandatory, Crucial And Semi Crucial Documents
Document Deferral / Waiver Memo
Facility Offer Letter
Agreement For Finance Under PPM For Rice Exporters
Enlistment Of Vendors - Deviation Approval Matrix (DAM)
Standard Application For Enlistment Of Vendors
Schedule Of Charges
--- Page 105 of 107 ---

Annexure N
I
II
III
IV
V
VI
VII
VIII
IX
X
XI
XII
XIII
XIV
XV
XVI
XVII
XVIII
XIX
XX
XXI
XXII
XXIII A
XXIII B
XXIV A
XXIV B
XXV
XXVI
XXVII
XXVIII
XXIX

1.2
1.2
1.3
1.5
1
1
1
2
3
4
1
1
1
1
1
1
1

1.1

Security Deposit
Site Visit Report
Vendors Probation Period Time Line & Upper Cap On Their Assignments
Agreement For Hiring The Services Of Vendors
Performance Rating Models
Tracking MIS
Approved List Of Vendors - Valuator
Approved List Of Vendors - Mucaddam
Approved List Of Vendors - Clearing And Forwarding Agents
Approved List Of Vendors - BIR Service Provider
Call Report Template
Request For Trade/Credit Checking
Letter Of Disclaimer
Stock Inspection Report
Premium Paid Receipt
Cover Note
Format Of Desktop Evaluation For Land/Building/Plant & Machinery (For RM)
Format Of Desktop Evaluation For Land/Building/Plant & Machinery (For External
Evaluator)
Temporary Extension Memo
Watchlist Classification Report
Classification Memorandum
Classified Credit Review
Classified Exposure Report
Transfer Of Classified Accounts To SAM/RCAD

--- Page 106 of 107 ---

XXX
XXXI
XXXII
XXXIII
XXXIV
XXXV
XXXVI A
XXXVI B
XXXVI C
XXXVI D
XXXVII
XXXVIII
XXXIX
XXXX
XXXXI A
XXXXI B
XXXXII A
XXXXII B

XXXXIII
XXXXIV A
XXXXIV B
XXXXIV C
XXXXV
XXXXVI