KARACHI: The State Bank of Pakistan has revised guidelines for transfer and assignment of Non-Performing Assets (NPAs) to Corporate Restructuring Companies (CRCs) for recovery of NPAs. The amendments in the Corporate Restructuring Companies Act 2016 vide Corporate Restructuring Companies (Amendment) Ordinance, 2020 and the Banks/DFIs were allowed to appoint CRCs as their Agent under an Agency Agreement, to recover their Non-Performing Assets (NPAs).

In order to provide guidance to the banks/DFIs for appointment of the CRCs as collection/recovery agent under an Agency Agreement, the Guidelines for Transfer and Assignment of Non-Performing Assets to CRCs have been revised by the SBP.

The SBP has advised the Banks and to comply with these revised Guidelines, in letter and spirit. Any deviation or non-compliance of the same shall attract punitive action under the relevant provisions of the Banking Companies Ordinance, 1962.

The Corporate Restructuring Companies Act, 20161, provides an overarching legal framework for the establishment and regulation of CRCs in Pakistan. The CRCs, established under the Act and licensed by the Securities and Exchange Commission of Pakistan (SECP) can, inter alia, acquire, buy, hold, manage, restructure and resolve NPAs of Financial Institutions (FIs) and restructure, reorganize, revive and liquidate the commercially or financially distressed companies and their businesses.

The Commission has now granted license to a company enabling it to operate as the first CRC in Pakistan. Therefore, in order to regulate the Transfer and Assignment of NPAs from FIs to the CRCs, SNP has decided to provide minimum Guidelines to the FIs.

According to guidelines, the FIs, whilst engaging with the CRCs, are required to ensure that Transfer and Assignment of NPAs is conducted in a fair, transparent, prudent manner and on an arm's length basis in accordance with the Act, relevant Laws, Rules, Regulatory Instructions, as amended from time to time, and FIs' internal policies and procedure manual.

The FIs should develop a Policy for the Transfer and Assignment of NPAs to the CRCs or the appointment of the CRCs as an Agent, under an Agency Agreement, for recovery of NPAs. Such Policy can be either an independent document or a part of the Credit Risk Management Policy or any other relevant policy of the FI.

The Policy should, inter alia, prescribe guidance on the types of NPAs eligible for the Transfer and Assignment to the CRCs or appointment of the CRCs as an Agent of the FIs for the recovery of NPAs. According to SBP, the technique, specified for the valuation of NPAs, should be transparent, consistent and provide reasonable estimates of realizable fair value of the NPAs.

The Policy will also prescribe the parameters for maintenance of historical data of NPAs, including written-off NPAs wherein right to recovery remains with the FIs, exceeding Rs50 million. The FI will, at least on a quarterly basis, present the overall performance of the Special Asset Management Group (SAMG) to its Board Risk Management Committee (BMRC). The overall performance evaluation criteria will be approved either by the Board or by the BRMC.

Copyright Business Recorder, 2020