NBFCs: SECP makes major changes in regulatory framework

The Securities and Exchange Commission of Pakistan (SECP) has made major changes in regulatory framework for non-banking finance company (NBFCs) and introduced the definition of "infrastructure finance company (IFC)."

Through SRO 1642 (I)/2019, the SECP has issued draft amendments in the Non-Banking Finance Companies and Notified Entities Regulations, 2008. According to the SECP, the IFC means an NBFC, which deploys at least 70 per cent of its total assets in infrastructure finance for such infrastructure projects which the Commission may notify through circular, having minimum credit rating of 'A' and is compliant with minimum equity and CAR requirement.

Under the revised regulations for the NBFCs to follow the procedure for obtaining approval of appointment [or re-appointment or any change of its directors or chief executive. Within ten days from the date of election of directors in a general meeting, the NBFC shall submit an application for appointment or reappointment of chief executive. In case of occurrence of any casual vacancy in respect of a director or a chief executive, the NBFC shall submit an application within 10 days.

In case the Board of Directors of an NBFC decides to remove its chief executive before the expiration of his term of office or the chief executive decides to tender his resignation before the completion of his term of office or replacement of Chief Executive on completion of his term, the NBFC shall immediately inform the Commission along with reasons for the same: Provided that the NBFC shall, within a period of seven days, submit an application complete in all respects, for obtaining approval of the Commission for appointment of the new chief executive.

An NBFC may provide unsecured Finance up to Rs. 500,000 to a single borrower. The aggregate unsecured Finance shall not exceed equity of the NBFC.

Provided that the total unsecured finance shall not exceed 50% of the equity of the deposit taking NBFC provided further that this Regulation shall not be applicable in case of Non-Bank Micro Finance Company: Provided further that an NBFC may provide unsecured finance up to Rs.2,000,000 to an SME subject to obtaining personal guarantees of its owners, partners or directors, as the case may be, and obtaining an undertaking from the SME to ensure that aggregate unsecured exposure to the SME does not exceed this limit.

Provided also that a non-deposit taking Lending NBFC may provide unsecured finance up to 5% (five percent) of its equity to a single commercial bank, microfinance bank and DFI having minimum credit rating of A- and a single NBFC having minimum credit rating of A by a credit rating agency registered with the Commission, SECP added.