CREDIT APPRAISAL & APPROVAL,

COLLATERALIZATION & RECOVERY IN FINANCING

FACILITATED BY
ADNAN ADIL HUSSAIN.
 • Financing, Financial Institutions
We will discuss
• Lending types
• Buy Back Agreement & the transaction
• Customer exposures & structuring of finance including rescheduling and
restructuring
• Regulatory Instructions (Prudential Regulations)
• Legislative framework of security
• Moveable and Immoveable securities
• Pledge
• Hypothecation
• Lien
• Assignment of Receiaveables
• First, Second, Ranking and parri passu Charge & priorities
• Mortgage & charge on Pass book
• Mortgage types, Immoveable properties, agricultural, commercial and
industrial properties
• Modes of Conveyance of Immoveable Properties
• Recovery and collection
 Financial Institutions Recovery of Finances Ordinance 2001
“Finance” includes, (FIRO)

1. an accommodation or facility provided on the basis of participation in profit and loss, markup or markdown in price,
hire purchase, equity support, lease, rent sharing, licensing charge or fee of any kind, purchase and sale of any
property including commodities, patents, designs, trade marks and copyrights, bills of exchange, promissory notes or
other instruments with or without buyback arrangement by a seller, participation term certificate, musharika,
morabaha, musawama, istisnah or modaraba certificate, term finance certificate;
2. facility of credit or charge cards;
3. facility of guarantees, indemnities, letters of credit or any other financial engagement which a financial institution
may give, issue or undertake on behalf of a customer, with a corresponding obligation by the customer to the
financial institution;
4. a loan, advance, cash credit, overdraft, packing credit, a bill discounted and purchased or any other financial
accommodation provided by a financial institution to a customer;
5. a benami loan or facility that is, a loan or facility the real beneficiary or recipient whereof is a person other than the
person in whose name the loan or facility is advanced or granted;
6. any amount due from a customer to a financial institution under a decree passed by a civil court or an award given
by an arbitrator;
7. any amount due from a customer to a financial institution which is the subject matter of any pending suit, appeal or
revision before any court;
8. any amount of loan or facility availed by a person from a financial institution outside Pakistan who is for the time
being resident in Pakistan.
9. any other facility availed by a customer from a financial institution.
 Financial Institutions Recovery of Finances Ordinance 2001 (FIRO)

“Obligation” includes
(i) any agreement for the repayment or extension of time in repayment of a finance or for its
restructuring or renewal or for payment or extension of time in payment of any other
amounts relating to a finance or liquidated damages; and

(ii) any and all representations, warranties and covenants made by or on behalf of the
customer to a financial institution at any stage, including representations, warranties and
covenants with regard to the ownership, mortgage, pledge, hypothecation or assignment of,
or other charge on, assets or properties or repayment of a finance or payment of any other
amounts relating to a finance or performance of an undertaking or fulfillment of a promise;
and

(iii) all duties imposed on the customer under this Ordinance;

Duty of a customer.(1) It shall be the duty of a customer to fulfil his obligations to the
financial institution.
 FINANCIAL INSTITUTION
Financial institution” means and includes (AS PER FIRO 2001)
• (i) any company whether incorporated within or outside Pakistan which
transacts the business of banking or any associated or ancillary business in
Pakistan through its branches within or outside Pakistan and includes a
government savings bank, but excludes the State Bank of Pakistan;
• (ii) a modaraba or modaraba management company, leasing company,
investment bank, venture capital company, financing company, unit trust or
mutual fund of any kind and credit or investment institution, corporation or
company; and
• (iii) any company authorized by law to carry on any similar business, as the
Federal Government may by notification in the official Gazette, specify.
 COMMERCIAL Electronic Money
BANKS DIGITAL FULL Institutions (EMI)-
BANKS Naya pay, Finja
etc)

DEVELOPMENT Payment System

FINANCE Operators (PSOs)/
INSTITUTIONS DIGITAL RETAIL
BANKS Payment Service
(DFIs) Providers (PSDs) NIFT, 1-
Link etc

2.NON
BANKING
FINANCIAL White Label ATMs
Credit (Non-Banking entities
INSTITUTIONS Bureaus to act as Digital
banking for cash
deposit & withdrawal)
 TYPES OF BANKING SECTORS

Islamic Banking sector

Development Finance Institution (DFI)/ Financial Institutions (FI)

Conventional Banking sector

• Mark up oriented
• Commission based (financial intermediary)
Categorization
• Corporate sector
• Investment Banking Sector
• Commercial sector
• SE Sector
• ME Sector
• Consumer
• Agricultural sector
• Others (staff, students, etc.)
 FINANCE PRODUCTS TYPE
Trade Related Fund Non Fund-based
General Finance related:
Based: Facilities
• Short Term (RF/CF • Pre-shipment Export • L/C Site/ DA (short
etc) Finance term)
• Medium Term • Packing Finance • L/C DA (medium/long
(DF/TF/Agri Finance/ • Post shipment Export term)
Leasing) Finance • Supplier Credit LC
• Long Term (DF/TF) • Post Shipment Export (Long term)
• Combination Finance • LG
• FIM/Forced PAD/PAD • Trade Credit Insurance
• FATR
 CONCEPT OF FINANCE AGREEMENT IN
CONVENTIONAL BANKING
• BUYBACK AGREEMENT
• Customer sells the goods to the bank at sale price (principle). The
bank pays the sale price. The customer then purchases the same
goods at a marked up price (purchase price) and pays the same after
some time in lump sum or in installment. The purchase price till its
payment is secured through primary security & collateral.
 AGREEMENT TO FINANCE-CONVENTIONAL
.
BUY BACK AGREEMENT
SELLS
GOODS

SALE PRICE
BANK CUSTOMER
BUYS BACK GOODS
DEFERRED PAYMENT PURCHASE PRICE (IN LUMP SUM OR INSTALMENT)

PRIMARY
IMMOVEABLE MOVEABLE
SECURITY
Guarantee
&
Indemnity
CHARGE HYPOTHEC
MORTGAGE PLEDGE
SEC 100 ATION
A TYPICAL FINANCE CYCLE

Finance
Repayment
application

Monitoring and follow- On site client

up visits visit

Finance
Finance appraisal
disbursement
Finance
decision
Courtship/ Relationship Exploring 1. Call Report
2. Exposure calculation
3. Finance/ Loan Structure initial evaluation
4. Security Structure evaluation
 
Credit Investigation 1. Borrower’s Profile
2. Personal Net Worth
3. Integrity
4. Management Profile
5. Industry Dynamics
6. Business to be Financed
7. Market Position
8. Relationship with other Banks/Financial Institutions
9. Security Checks/Valuation
10.
11.
12.
Purpose of Financing
Repayment
Know your Customer
TAPESTRY
Proposal & Appraisal 1. Credit History (Character)
OF CREDIT
2. Ability to Repay and Management Ability (Capacity)
3. Solvability (Capital)
4. Economic Environment (Condition)
5. What And How Much security to be taken (Collateral)

Approval 1. Rationale, consent, and things to do

2. Regulatory Instructions
Documentation & Disbursement 1. Security laws of land
2. Regulatory Instructions
Monitoring 1. Regulatory Instructions
2. Prudent banking practices
Recovery & Collection Laws of land and timely action

Restructuring & Rescheduling 1. Regulatory Instructions

2. Finance Structure
 CREDIT RISK MANAGEMENT
Credit risk arises from the potential that an obligor is either unwilling to
perform on an obligation or its ability to perform such obligation is impaired
resulting in economic loss to the bank.
• Before allowing a credit facility, the bank must make an assessment of risk
profile of the customer/transaction.
• This may include
• Credit assessment of the borrower’s industry, and macro economic factors.
• The purpose of credit and source of repayment.
• The track record / repayment history of borrower.
• Assess/evaluate the repayment capacity of the borrower.
• The Proposed terms and conditions and covenants.
• Adequacy and enforceability of collaterals.
• Approval from appropriate authority
 SBP RISK MANAGEMENT GUIDLINES

• While structuring credit facilities institutions should appraise

the amount and timing of the cash flows as well as the
financial position of the borrower and intended purpose of
the funds.
• It is utmost important that due consideration should be given
to the risk reward trade –off in granting a credit facility and
credit should be priced to cover all embedded costs.
Relevant terms and conditions should be laid down to protect
the institution’s interest
 CREDIT POLICY
SBP RISK MANAGEMENT GUIDELINES & CORP PRUDENTIAL REGULATIONS

A credit policy prescribing Policy should include

 a minimum current ratio and  Detailed and formalized credit evaluation/ appraisal
 linkage between borrower’s equity and its total process.
financing facilities from all financial institutions.  Credit approval authority at various hierarchy levels
 Full guidance to the management about the above including authority for approving exceptions.
requirements for various categories of clients and  Risk identification, measurement, monitoring and
corresponding risk mitigants etc. acceptable to the control
bank/DFI.  Risk acceptance criteria
 Explicit provisions for circumstances under which  Credit origination and credit administration and loan
the bank/DFI may extend financing facilities that are documentation procedures
in breach of these limits, should the bank decide to do  Roles and responsibilities of units/staff involved in
so. origination and management of credit.
 Clearly provide approving authorities that would be  Guidelines on management of problem loans.
responsible to allow exemptions in accordance with the (RMG Ref: 2.2.6)
policy. The senior management of the bank should develop and
 All such exceptions allowed shall be reported to the establish credit policies and credit administration
Board of Directors at least on quarterly basis procedures as a part of overall credit risk management
{Ref: R-3(1) C} framework and get those approved from board.
 CREDIT APPRAISAL
1.Credit Selection
2.Amount of exposure
3.Structuring Of Credit
4.Type of Security
5.Tenure and Price of facility  
5.Determining frequency and intensity of monitoring
6.Deciding the level of Approving authority
7.Basis for the Credit Rating.
 Business viability
 Financial strength
 market reputation
 product competition
 integrity of management
 payback ability
 APPROVAL
• Analysis • Structure of Credit
• Risk Identification • Assessing right size

• Assessing risks • Suitable type of facility

• Repayment timings
• Risk hedging through risk mitigants
• Suitable Markup/pricing
• Conduct of Account Review
• Others
• Early warning signs of credit deterioration
• Financial statements Analysis

• Strong cash flow support for smooth debt service supported • Justification for Finance
by financial analysis
• Compliance with Regulatory as well as bank’s policy • Covenants
framework:
 DOCUMENTATION

CONVENTIONAL ISLAMIC

Encumbrance
Encumbrance Creation
Recording

Standard Charge
Limited Company
Documents

Property Related Entities (other than

Documents limited companies
PRUDENTIAL REGULATIONS FOR CORPORATE & COMMERCIAL (2015), COMPANIES ACT 2017

LEGAL & REGULATORY INSTRUCTIONS

 EXPOSURE
SBP PR CORP/COMMERCIAL

• Financing Facilities whether fund based or non-fund based extended

by a bank /DFI & include
• Any form of financing facility extended /Bills purchased/discounted; Bills
purchased / discounted on the guarantee of the person
• Credit facilities extended through Corporate Cards.
• Any financing obligation undertaken on behalf of the person under a letter of
credit including a stand-by letter of credit, or similar instrument.
• Finance repayment financial guarantees issued on behalf of the person
• Any obligations undertaken on behalf of the person under any other
guarantees including underwriting commitments
• Acceptance/endorsements made on account
• Any other liability assumed on behalf of the person to advance funds pursuant
to a contractual commitment
 EXPOSURE
SBP PR CORP/COMMERCIAL

• Subscription to or investment in shares, Participation Term

Certificates, Term Finance Certificates, Sukuk or any other
Commercial Paper by whatever name called issued or guaranteed by
the persons.
• Exposure (Net open position) on account of derivative transactions
allowed under Financial Derivatives Business Regulations (FDBR)
For the purpose of calculating exposure, the sanctioned limits, or
outstanding, whichever are higher, will be considered. (Foreign
Currency Options, Forward Rate Agreements, Interest Rate Swaps)
(“End-User” of derivatives, s “Non-Market Maker Financial
Institutions”, “Authorized Derivatives Dealer”).
 REGULATORY EXPOSURE LIMITS

1.Per party Exposure Limit

2.Per party Clean Exposure Limit
3.Per market segment limit (No such regulatory limit exist, however, since
the bank has always limited resources, so the bank has to decide that how much can be allocated to the
various market segments of Corporate/ Commercial clients, which will be based upon the Bank’s
business plan).

4.Bank’s Overall Clean Exposure Limit

5.Per Group limit
6.Per Party Exposure Limit from All Banks
7.Investment Exposure (Shares & Sakuk) Limit
 CALCULATION OF EXPOSURE
Calculation of Exposure is one of those points which Prudential Regulations require to be
specifically covered in the Approval Proposal. The objective of this is manifold:

• To ensure that exposure limits with respect to Per Party Exposure and Per Group Exposure to
Commercial/Corporate clients is not breached.

• To determine how much to lend to one Customer.

 
• “Exposure” is to be calculated every time any finance facility is originated, renewed or enhanced. 

• To check whether Credit Information Bureau is to be obtained or not (through calculating exposure
minus liquid security).
 
• To determine the optimum amount of exposure in each industry
 
• To ensure compliance with the Regulations relating to the exposure limits, it is imperative that the term
is understood correctly so that it can be calculated correctly.
 
 GROUP & CONTROL
• Group means persons, whether natural or juridical, if one of them or his dependent family
members or its subsidiary, have control or hold substantial ownership interest (as defined in
Prudential Regulations) over the other.
• Subsidiary will have the same meaning as defined in section 3 of the Companies Ordinance,
1984* i.e. a company or a body corporate shall deemed to be a subsidiary of another company if
that other company or body corporate directly or indirectly controls, beneficially owns or holds
more than 50% of its voting securities or otherwise has power to elect and appoint more than
50% of its directors.
• *(Section 2 (1) (68) of Companies Act 2017 (layers of subsidiaries are also subsidiary)
• Control refers to an ownership directly or indirectly through subsidiaries, of more than one half of
voting power of an enterprise.
• Substantial ownership/affiliation means beneficial shareholding of more than 25% by a person
and/or by his dependent family members, which will include his/her spouse, dependent lineal
ascendants and descendants and dependent brothers and sisters. However, shareholding in or by
the Government owned entities and financial institutions will not constitute substantial
ownership/affiliation, for the purpose of these regulations.
 ASSOCIATED COMPANY
Companies Act 2017

• Associated companies and associated undertakings mean any two

or more companies or undertakings, or a company and an undertaking,
interconnected with each other in the following manner, namely:—
• (a) a person holds or controls shares carrying not less than twenty percent of
the voting power in a company also holding twenty percent of the voting
power in another company or undertaking; or
• (b) if the companies or undertakings are under common management or
control or one is the subsidiary of another; or
• (c) if the undertaking is a modaraba managed by the company;
 ASSOCIATED PERSON
Companies Act 2017

A person who is the owner of or a partner or director in a company or

undertaking and holds or controls shares carrying not less than ten percent of
the voting power shall be deemed to be an associated person of every such
other person holding same 10% voting rights through shares in another
company or holding.
• Provided that;
• Shares in the name of spouse or minor children of the person shall be
deemed to be in his name.
• Nominated Directors in PSCs, Independent Directors shall not be taken to
form Association
• Shares of Government/financial institution in two of its concern will not fall
under this definition.
 BENEFICIAL OWNERSHIP
“beneficial ownership of shareholders or officer of a company” means ownership of securities beneficially
owned, held or controlled by any officer or substantial shareholder directly or indirectly, either by—
• (a) him or her
• (b) the wife or husband of an officer of a company, not being herself or himself an officer of the company;
• (c) the minor son or daughter of an officer where ―son includes step-son and daughter includes step-
daughter; and minor means a person under the age of eighteen years;
• (d) in case of a company, where such officer or substantial shareholder is a shareholder, but to the extent of
his proportionate shareholding in the company:
• Provided that ―control in relation to securities means the power to exercise a controlling influence over
the voting power attached thereto:
• Provided further that in case the substantial shareholder is a non-natural person, only those securities will be
treated beneficially owned by it, which are held in its name.
Explanation.—For the purpose of this Act “substantial shareholder”, in relation to a company, means a
person who has an interest in shares of a company-
• (a) the nominal value of which is equal to or more
• (a) the nominal value of which is equal to or more than ten per cent of the issued share capital of the
company; or
• (b) which enables the person to exercise or control the exercise of ten per cent or more of the voting
power at a general meeting of the company;
 SINGLE OBLIGOR/GROUP LIMIT

Exposure limit as a % of bank’s/DFI’s equity (as disclosed in

the latest audited financial statements)

For single obligor For obligor group

Total (fund and non Total (fund and
Effective date fund based) exposure non-fund based)
limit Fund based
Fund based limit exposure limit
limit

30-06-2015 20 20 25 25

TERF/ ITERF for plant and machinery would attract weightage of 25% for the purpose of calculation of
Single / Group Obligor Exposure Limit (BPRD Circular Letter No. 41 of 2020)
 EQUITY OF THE BANK/DFI
Includes
• paid-up capital in respect of ordinary shares,
• general reserves,
• balance in share premium account,
• reserve for issue of bonus shares,
• statutory reserves,
• retained earnings/accumulated losses as disclosed in latest annual audited financial statements.

•For the purpose of Regulation R-1, reserve shall also include revaluation reserves on
account of fixed assets to the extent of 50% of their value. However, for this purpose
assets must be prudently valued by valuators on the panel of Pakistan Banks Association
(PBA), fully taking into account the possibility of price fluctuations and forced sale
value.
•Revaluation reserves reflecting the difference between the book value and the market
value will be eligible up to 50%.
 LARGE EXPOSURE
Large Exposure means an exposure of 10% or more of a bank’s/DFI’s
equity to a single obligor or a group.
• The aggregate amount of large exposures of a bank/DFI shall not, at
any point in time, exceed 50% of its total gross advances and
investments (excluding investment in government securities and
loans secured against GOP guarantees).
• Large exposure limits shall not be applicable to investment in
government securities and loans secured against GOP guarantees
• Different concentration limits may be assigned to different
banks/DFIs by SBP based on their supervisory assessment
 EXPOSURE IN SHARES AND
TFCs/SUKUK
• Banks / DFIs shall not own shares of any single company in excess of
5% of their own equity.
• This limit will also be applicable to units of all types of mutual funds
and REITs
• Banks/DFIs will obtain prior approval from the State Bank for
purchasing shares of a company exceeding, in aggregate, 10% of the
capital of Investee Company or 5% of their paid-up capital, whichever
is lower.
EXPOSURE IN SHARE IN EXCESS OF REGULATORY LIMIT
10% of the capital of Investee Company or 5% of their paid-up capital, whichever is lower

• In the case of investee company, limit will be calculated by taking

10% of the number of its paid up shares,
• In the case of investing bank/DFI, limit will be calculated by taking
5% of paid-up shares of the bank/DFI, and then multiplying with their
face value.
• The bank’s/DFI's request will be considered in the light of the nature
of relationship of the investing bank and the investee company.
Further, other factors, such as financial standing of the investing bank,
its aggregate investment portfolio, experience in managing the same,
efficacy of internal controls etc. will also be taken into account.
 LIMIT ON EXPOSURE AGAINST CONTINGENT
LIABILITIES
(R-2)

1. Contingent liabilities of a bank/DFI shall not exceed 10 times of its equity.

2. Authorized Derivative Dealers shall restrict their exposure to derivatives up to 5
times of their equity within overall limit of contingent liabilities.
3. Following shall not constitute contingent liabilities for the purpose of this
regulation:
1. Bills for collection.
2. Non-fund based exposure to the extent covered by cash/liquid assets.
3. Letters of credit/guarantee where the payment is guaranteed by the State Bank of Pakistan/Federal
Government or banks/DFIs rated at least ‘A’ by a recognized rating agency.
4. Claims other than those related to provision of facilities (fund based or non-fund based) to the banks’/DFIs’
constituents, where the probability of conversion of these claims into liabilities are remote.
• For the purpose of this regulation, weightage of 50% shall be given to
bid/mobilization advance/performance bonds and 10% to forward foreign
exchange contracts
 FINANCIAL ANALYSIS & OTHER CONDITIONS
PR(R-3)
In Renewal, enhancement and rescheduling / restructuring) and annual review of long term facilities
• Banks/DFIs shall, as a matter of rule, obtain a copy of financial statements relating to
the business of every borrower
• The financial statements should be duly audited by a practicing Chartered Accountant.
• In case of a borrower other than a public company or a private company which is a
subsidiary of a public company, financial statements audited by a practicing Cost
and Management Accountant are reckoned equally acceptable.
• However, if the borrower is a public limited company and aggregate exposure from all
Banks/DFIs exceeds Rs. 500 million, banks/DFIs should obtain the financial
statements duly audited by a firm of Chartered Accountants which has received
satisfactory rating under the Quality Control Review (QCR) Program of the
Institute of Chartered Accountants of Pakistan.
 FINANCIAL ANALYSIS & OTHER CONDITIONS
PR(R-3)
Exposure (including Fresh, renewal, enhancement and rescheduling/restructuring

• Properly assess the credit need of the borrower based on their financial analysis and
genuine credit requirements.
• Give due weightage to the credit report (eCIB from SBP) relating to the borrower
and its group. CIB report is not older than two months at the time of approval of
credit limits.
• For exposure on defaulters, they should strictly follow their risk management
policies and credit approval criteria and properly record reasons and justifications in
the approval form.
• Required to obtain Borrower’s Basic Fact Sheet (BBFS). However, if the Loan
Application Form already contains all the information as required in BBFS, then no
separate BBFS may be required
 REGULATION R-4
SECURITY AND MARGIN REQUIREMENTS
• Secured means exposure backed by liquid assets, pledge stock, mortgage of
land, plant, building, machinery or any other fixed assets, hypothecation of stock
(inventory), trust receipt, assignment of receivable, lease rentals, and contact
receivables but does not include hypothecation of household goods. The
unsecured exposure will be considered as clean.
• Financing facilities granted without securities including those granted against
personal guarantees shall be deemed as ‘clean’ for the purpose of this regulation.
• A bank’s exposure against the security of Trust Receipt only may be treated as
secured exposure
• Banks/DFIs are free to determine the margin requirements on facilities provided
by them to their clients taking into account the risk profile of the borrower(s)
 CLEAN EXPOSURE
• For Corporate & Commercial Finance: All exposures shall be adequately secured. However,
banks/DFIs, in aggregate, may provide clean financing facility in any form up to Rs 2,000,000/- (Rupees
two million only) to any single obligor. Financing facilities granted without securities including those
granted against personal guarantees shall be deemed as ‘clean’ for the purpose of this regulation. Further,
at the time of granting a clean facility, banks/DFIs shall obtain a written declaration to the effect that the
borrower, has not availed of such facilities from other banks/DFIs so as to exceed the prescribed limit of
Rs 2,000,000/- in aggregate.
• Banks/DFIs shall ensure that the aggregate exposure against all their clean facilities shall not, at any
point in time, exceed the amount of their equity as disclosed in their latest audited financial statements
• For Agricultural Finance clean finance limit is Rs 5,000,000/
• For SME Finance, the clean finance limit is Rs 5,000,000/
• For Consumer Finance: Banks/DFIs may take total clean exposure on a customer under Credit Card and
Personal loan/financing up to Rs 2,000,000 in aggregate from all banks/DFIs. Further, banks/DFIs shall
also ensure that overall credit card and personal loan/financing limits, both on secured as well as on
unsecured basis, availed by one person from all banks/DFIs in aggregate should not exceed Rs
5,000,000, at any point in time.
 EXEMPTIONS TO PER PARTY CLEAN EXPOSURE LIMIT
Facilities provided to finance the export of commodities eligible under Export Finance
Scheme backed by LCs.
Financing covered by the guarantee of Pakistan Export Finance Guarantee Agency up to
the amount of guarantee.
Loans/ advances given to the employees of the banks/ DFIs in accordance with their
entitlement / staff loan policy.
Investment in COIs / interbank placements with NBFCs, provided the investee NBFC is
at least rated ‘A’ for long-term rating and ‘A2’ for short-term rating or equivalent by a
recognized rating agency.
Investment of banks/DFIs in subordinated and unsecured TFCs, issued by other
banks/DFIs to raise Tier-II Capital as per State Bank of Pakistan’s instructions.
Banks/DFIs will be free to decide about obtaining security/collateral against the L/C
facilities for the interim period, i.e. from the date of opening of L/C till the receipt of title
documents to the goods.
REQUIREMENT OF PERSONAL GUARANTEE

• Banks/DFIs shall formulate a policy, duly approved by their Board of

Directors, about obtaining personal guarantees of directors of private
limited companies.
• Banks/DFIs may, at their discretion, link this requirement to the credit
rating of the borrower, their past experience with it or its financial
strength and operating performance
 MARGINAL REQUIREMENTS
• Banks/DFIs are free to determine the margin requirements on facilities
provided by them to their clients taking into account the risk profile
of the borrower.
• Exposure against the shares of listed companies shall be subject to
minimum margin of 30% of their current market value. factors.
Banks/DFIs will monitor the margin at least on weekly basis and will
take appropriate action for top-up and sell-out on the basis of their
Board of Directors’ approved credit policy.
• Exposure against TFCs/Sukuks rated ‘BBB’ and above by a credit
rating agency on the approved panel of State Bank of Pakistan shall be
subject to a minimum margin of 20%
 REGULATION R-5
MONITORING
• The banks/DFIs shall have in place Collateral Management Policy duly approved by the BOD or
Country Head (in case of branches of foreign banks).
• The policy may be part of the bank’s overall credit policy or separate as deemed appropriate by the
bank/DFI.
• The Policy shall cover different aspects related to collateral such as generally acceptable forms,
quality, valuation at the time of acceptance as well as over the tenor of finance, haircuts,
price volatility, diversification, margin calls limits, substitution of collateral and managing
collateral in the event of a counterparty default.
• The policy shall clearly delineate the responsibilities in various scenarios, including safe custody
& inspection of collateral, where bank/DFI is a sole lender or where it is one of multiple lenders.
• In the later case the policy should cover the aspect of coordination with other financial institutions
particularly where financing is made against hypothecation of stock and/or receivables on pari-
passu or ranking charge basis and pledge of stock.
• The Banks/DFIs shall devise an appropriate mechanism to ensure that the financing extended is
utilized for the intended purpose
 JOINT INSPECTION OF PLEDGED STOCKS

• All the banks/DFIs financing any particular customer against pledge of stocks of below mentioned
commodities shall conduct joint inspection of the pledged stocks at least once in a quarter, where aggregate
exposure against such stocks equals or exceeds the amount shown against each commodity
Sr. No. Commodity Aggregate Committed Exposure
(limits)

1 Cotton (bales), excluding Phutti Rs. 500 million `

2 Sugar Rs. 500 million

3 Wheat Rs. 250 million

4 Rice/Paddy Rs. 150 million

5 Edible Oil Rs. 250 million

 JOINT INSPECTION PLEDGE
• The bank/DFI with the largest committed exposure (limit) shall act as
the lead bank/DFI to coordinate the quarterly joint inspection. In case
two or more banks/DFIs have the same level of highest committed
exposure, they shall mutually agree on which bank/DFI to
assume the responsibility. The lead bank/DFI once selected shall
perform coordination for one year and subsequently transfer the
responsibility if, during the one year period, some other bank/DFI
commits the largest exposure. In case of syndicate financing against
pledge of stocks, the agent bank/DFI shall act as the lead bank/DFI for
coordinating the quarterly joint inspection
 JOINT INSPECTION PLEDGE
• The Borrower’s Basic Fact Sheet (BBFS) shall serve as the
main source for obtaining information on exposures
committed by the banks/DFIs against pledged stocks for any
particular customer. Any bank/DFI taking exposure on a
customer against pledge of stocks shall inform, after seeking
prior written consent from obligor as per law, about the same
to all the banks/DFIs already financing that customer, within
five working days of the credit approval.
 GUARANTEES
(R-7)

• All guarantees issued by the banks/DFIs shall be fully secured, provided

that banks/DFIs hold at least 20% of the guaranteed amount in the form of
liquid assets as security.
• The condition of fully secured Guarantees may be may be waived up to
50% by the banks/DFIs at their own discretion, provided that banks/DFIs
hold at least 20% of the guaranteed amount in the form of liquid assets as
security, for
• bid bonds, performance bonds, Guarantees against mobilization advance issued
• on behalf of local consultancy firms/ contractors of goods and services bidding for
international contracts/Tenders
• where the consultancy fees and other payments are to be received in foreign
exchange
Subject to other conditions as per Annex IV
 GUARANTEES
(R-7)

• Banks/ DFIs can issue guarantees on behalf of Pakistani firms and companies
against the back to back/counter-guarantees of banks/DFI, and/or counter-
guarantee of bank/DFI situated in a foreign country is also acceptable, subject
to a Board approved policy having internal limits for acceptance of such
counter guarantees, subject to Credit rating and limit monitoring of issuing
banks.
• The guarantees shall be for a specific amount and expiry date and shall contain
claim lodgment date. However, banks/DFIs are allowed to issue open-ended
guarantees without clearance from State Bank of Pakistan provided banks/DFIs
have secured their interest by adequate collateral or other arrangements
acceptable to the bank/DFI for issuance of such guarantees in favor of
Government departments, corporations/autonomous bodies owned/controlled
by the Government and guarantees required by the courts
 INFRASTRUCTURE PROJECT FINANCING (IPF)
• Asset Securitization means a process whereby any Special Purpose Vehicle raises funds through the
issue of Term Finance Certificates or any other instruments with the approval of Securities and
Exchange Commission of Pakistan (SECP). The funds so received are used to make payment to the
Originator, for acquiring from the Originator the title, property or right in the receivables or other
assets in the form of actionable claims.
• Infrastructure Project Financing (IPF) means either limited recourse or non-recourse financing for
an Infrastructure Project as mentioned in table below, which includes both fund-based and non fund-
based facilities. Projects being financed under modes of financing other than project finance shall not
be governed under Prudential Regulations for IPF . Transport, power, Energy Telecommunication,
water & Telecommunication, Social Cultural & Commercial Infrastructure.
SECURITY
• In order to promote Infrastructure Project Financing, banks/DFIs are encouraged to accept a
‘Concession Agreement/License’ issued by a Government Agency as collateral, as part of the overall
collateral arrangements,
• Primary Security/Collateral: First charge on all the receivables and Project Account(s), Project
Collection Account, Debt Payment Account, Bank Accounts, including offshore accounts maintained
by the Project Company.
 INFRASTRUCTURE PROJECT FINANCING (IPF)
SECONDARY SECURITIES/COLLATERAL
• First Charge over all the immovable and movable assets of the project company and
that of the contractors if deemed necessary by the lender;
• First assignment of all insurance policies to cover major and minor risks, including
force-majeure (if applicable);
• First pledge of sponsors’ share in the company, besides ensuring that sponsor’s holding
does not fall below 51% of equity capital without prior approval of the lender(s);
• First assignment by way of security of all government approvals and agreements, the
implementation agreement and the government undertaking;
• First assignment by way of security of the company’s rights under project agreements,
such as project funds agreements, retention account agreement, shareholders
agreement, supply agreement and off-take agreement, EPC and O&M contracts where
applicable.
• First charge/assignment of corporate/bank guarantees furnished by the contractors to
the project company for claiming liquidated damages.
• Any other security as deemed appropriate by the bank/DFI for financing.
DOCUMENTATION
ENCUMBRANCE CREATION &
RECORDING
MOVEABLE PROPERTIES
IMMOVEABLE PROPERTIES
 WHAT IS “DOCUMENTATION”
• Customer related Account Opening Documents.
• Pre-Sanction Documents.
• Post Sanction Documents.
• FOREX related Documents.
• Monitoring Documents.
• SWAP Documents.
• Rescheduling/Restructuring Documents.
POST SANCTION DOCUMENTATION
• Why Documents are sought
• Evidence in negotiation
• Use in litigation
• Types of Legal Documents
• Documents having effects in criminal litigation
• Documents having effects in Civil Litigation
• Charge Creation
• Moveable Assets
• Immoveable Assets
• Recording of Charge /Lien Marking.
• Moveable Assets
• Immoveable Assets
 MODES OF ENCUMBRANCES
• INTANGIBLE PROPERTY
• Lien
• Assignment
• Hypothecation (for STA)
• TANGIBLE PROPERTY
• MOVEABLE PROPERTY
• Pledge,
• Hypothecation
• IMMOVEABLE PROPERTY
• Mortgage
• Charge as per section 100 TPA….(Passbook)
• Assignment
 MOVEABLE PROPERTY (as per STA)
• As per Section 2 sub section 29 of STA, ”movable property” means any
tangible or intangible property other than immovable property, including but
not limited to receivables; rights under letters of credit; rights under trust
receipts; securities (including Government securities) other than book-entry
securities; right to funds credited in a deposit account; title documents;
negotiable instruments; intellectual property, including patents, trademarks,
copyrights, trade-names, goodwill, royalties; stock in trade; inventory; interest
in partnership and other form of entity; ornaments; jewelery; stones; goods-in-
transit; agricultural produce; leaves; grass, including growing grass; petroleum
or minerals that have been extracted; motor vehicles and property attached to
immovable property as defined in clause xxxviii of this sub-section;
• Collateral means “moveable property” whether located inside or outside
Pakistan, that is subject to a security interest.
 IMMOVEABLE PROPERTY
• Section 3 of TPA 1882 “attached to the earth” means-
(a) rooted in the earth, as in the case of trees and shrubs;
(b) imbedded in the earth, as in the case of walls or buildings; or
(c) attached to what is so imbedded for the permanent beneficial enjoyment of that to
which it is attached:
• “immoveable property” includes land, buildings, benefits to arise out of land and things
attached to the earth, or permanently fastened to anything attached to the earth, hereditary
allowances, rights to ways, lights, ferries and fisheries but does not include (a) standing
timber, growing crops or grass whether immediate severance thereof it intended or not; (b)
fruit upon and juice in trees whether in existence or to grow in future; and (c) machinery
embedded in or attached to the earth, when dealt with apart from the land (section 2 sub
section 6 of Registration Act 1908)
• "Immovable property" shall include land, benefits to arise out of land, and things attached
to the earth, or permanently fastened to anything attached to the earth. (section 3 of
General Clauses Act 1897)
 IMMOVEABLE PROPERTY (as per STA 2016)
• “immovable property” shall include land, benefits to arise out of land, and
things attached to the earth, or permanently fastened to anything attached to
the earth, and shall, notwithstanding anything inconsistent therewith
contained in the General Clauses Act, 1897 (X of 1897), Transfer of Property
Act, 1882 (IV of 1882), Registration Act 1908, (XVI of 1908) and any other
law for the time being in force, exclude property attached to immovable
property as defined in clause (xxxviii) of this sub-section; (STA section 2
sub section 25)
• Section 2 sub section (38) of STA 2016; ”property attached to immovable
property” means the following property irrespective of whether it is attached
to the earth or permanently fastened to anything attached to the earth:
– (a) plant, equipment or machinery;
– (b) fixtures and fittings;
– (c) cables or pipelines embedded in the earth or otherwise; and
– (d) any other item of property as may be notified by the Federal Government for the
purposes of this Act notwithstanding anything inconsistent therewith contained in the
General Clauses Act, 1897 (X of 1897), Transfer of Property Act, 1882 (IV of 1882),
Registration Act, 1908 (XVI of 1908) and any other law for the time being in force;
 LAWS OF ENCUMBRANCES-MOVEABLE PROPERTY

• TYPES & LAWS

MOVEABLE
PROPERTY

PLEDGE HYPOTHECATION LIEN

CREATION REGISTRATION CREATION REGISTRATION

Companies Agreement Entities

Agreement Entities (STA Companies (SECP
(Companies Act
(Contract Act) 2016) Contract Act (STA) Companies Act)
2017)
 LAWS OF ENCUMBRANCES-IMMOVEABLE PROPERTY

• TYPES & LAWS IMMOVEABLE

PROPERTY

CHARGE ON
MORTGAGE ASSIGNMENT
PASSBOOK

CREATION &
CREATION REGISTRATION SAME AS
REGISTRATION
MORTGAG
E
Agreement REGISTRAR ENDORSEMENT IN
(TRANSFER OF REGISTRATION ACT LIEN MARKING Passbook (Pass
PROPERTY ACT 1908 Book Act 1973)

CONCERNED
PROPERTY RECORD

SECP (COMPANIES
ACT)
ENCUMBRANCE
ON MOVEABLE
PROPERTY
• Contract Act 1872
• Financial Institutions Secured Transaction Act 2016 (STA)
 HYPOTHECATION
• “Hypothecation” means a charge created by a customer, on all or any
present or after-acquired movable property, in favour of a secured
creditor without delivery of possession of the movable property to such
secured creditor; (Section 2 sub-section 24 of STA 2016)
• The civil law recognizes two kinds of pledge, viz., the “pignus” (pawn)
in which the possession of the thing is actually delivered to the person
for whose benefit the pledge was made and ‘hypotheca”
(hypothecation) in which the possession of the thing pledged remained
with the debtor, the resting in mere contract without delivery.
 PLEDGE
• “The bailment of goods as security for payment of a debt or
performance of a promise is called pledge”. (section 172).
• “A bailment is the delivery of goods by one person to another for
some purpose, upon a contract that they shall, when the purpose is
accomplished, be returned or otherwise disposed off according to the
direction of the person delivering them” (Section 148).
 PLEDGE AS PER STA 2016
• “Pledge” shall have the same meaning as is assigned to it under section 172 of the
Contract Act, 1872 (lX of 1872) and excludes, a security interest, in a negotiable
instrument or a security interest in collateral covered by a title document. (section 2
sub section 33)
• “Proceeds” means identifiable or traceable movable property derived from
collateral including (a) movable property acquired, directly or indirectly, upon the
sale, lease, Licence, exchange, or any other mode of alienation of collateral; (b)
natural fruits of the collateral, including harvested produce where the collateral is
crops or wool, meat or offspring where the collateral is livestock; (c) any and all
amounts, revenues and receivables paid or payable under or in connection with the
collateral; (d) rights arising out of the collateral, including a right to an insurance
payment or any other payment as indemnity or compensation for loss of, or damage
to the collateral, and (e) proceeds of proceeds;
 POSSESSION
AS PER SECURED TRANSACTION ACT

• “Possession” means the actual possession of collateral by a

person or an agent or employee of that person, or by an
independent person that acknowledges holding it for that
person; (section 2 sub section 34)
 TYPES OF POSSESSION

• Corporeal Possession: Objects which have physical or materialistic manifestation, and which our
senses can perceive are corporeal possession.  Thus, it is the persistent exercise of a claim on the use
of material or tangible objects. For Example House, car, cycle, pen, etc.
• Incorporeal Possession: Objects which don’t have any physical or materialistic manifestation, and
which our senses cannot perceive are incorporeal objects. Thus, it is the persistent exercise of a claim
on the use of immaterial or intangible objects. For example Trademark, goodwill, patent, copyright,
etc.
• Mediate possession of an object is the possession of a thing through a mediator (middleman) like an
agent, friend or servant. It is also called indirect possession.
• Direct Possession: When the possessor himself possesses the property or thing, we call it immediate
possession or direct possession. For example:  when I buy a pen from a shop and keep it for myself. 
The pen is in the immediate possession of mine.
• Constructive Possession is the authority over an object without having actual possession or charge
of that material.  In other words, constructive possession is not actually a possession, but it is a
possession in law and not possession in fact. For example, the delivery of key of car.  Here driver
was the constructive possessor of car until he delivers the key.
 TYPES OF POSSESSION
• Adverse possession means the possession of some property or object, without legal title, for a
certain time period, sufficient to become acknowledged legal owner. Sometimes, we also
define it informally as “squatter’s rights”.  In actual adverse possession of some property, the
possessor is required to prove an intention to keep it absolutely for oneself. Just claiming the
property or paying liabilities for it, without actually possessing it, is not sufficient. For example
Continuous use of private land or driveway or agricultural field of an unused piece of land.
• De facto (in fact) possession means the possession which exists in reality even if it is not
legally recognized.
• De jure possessions are legally recognized possessions regardless of whether it exists in
reality or not.  De jure is a Latin word meaning “in law”, lawful, legitimate or a matter of law. 
It is also known as juridical possession meaning possession in the eyes of law. De jure
possession is a type of constructive possession. This means that even if a person is not in actual
control or physical contact with the property, they have the legal authority to deal with it as per
their will. For instance, a tenant may be legally occupying an apartment, but the landlord has
constructive possession over it.
 PLEDGE DOCUMENTATION-GOLD
• Agreement to Finance
• Personal Guarantee
• Letter of Pledge
• Schroffs/ Goldsmith Assessment
• Delivery and sealing the bag in presence of Customer
• Undertaking of Genuineness
• Indemnification
 PLEDGE DOCUMENTATION-STOCKS
• IB-12
• IB-6/7
• (IB-24/22/23) In case of collateral
• IB-29(not used for Agri Credit)
• IB-26
• No liability/charge certificate
• Letter of Disclaimer.
• Letter of request from borrower to take delivery
• Letter of entrustment from bank to Muccaddum.
• Godown Certificate from Muccaddum.
• Delivery receipt Report by Muccaddum.
• Stock Report.
• Delivery Order.
 TYPES OF SHORTAGE
Decrease in quantity
• Due to Fire
• Due to natural calamity.
• Due to theft/burglary
• Due to forced lifting of the customer
• Due to mischievous lifting of stocks by the customer in connivance with
Muccaddum.
• Due to irregular/improper/delayed issuance or Non-Issuance of Delivery
Order by the bank.
• Due to Improper calculation of DP.
 TYPES OF SHORTAGE
Decrease in quality
• Due to Moisture/pests or other instant force majure problems
• Mal-handling/careless control of stocks which may contain thousands of instances
like Cotton bales needs moisture at certain degree a little bit of carelessness may
create havoc.
• Mal-handling/careless control of stocks with malafide intentions.
• Natural Calamity eg; rain, heat etc
• Stock being older than 180 days in violation of FIFO not observed.
• Subjective rating/grading of stocks by auditor.
 FLOATING, FIXED & PARI PASSU CHARGE

• Floating Charge means a charge created by a customer, on all present and after-acquired
movable property or a certain class of present and after-acquired movable property
(including receivables or inventory), in favour of a secured creditor and pursuant to
which the customer is free to deal with the movable property in the ordinary course of its
business until the crystallization, in terms of the security agreement, of such charge into
a fixed charge; (Section 2 sub-section 21 of STA 2016)
• Fixed charge is a charge on a definite property which can be ascertained and the
company cannot dispose of the property without the consent of the charge holder.
However the company is allowed to use it for business purpose. Generally fixed charge
is created on fixed assets such as plant and machinery.
• Pari-passu charge shall be considered on proportionate basis of outstanding amount
(PR- ANNEX VI) Under this, the charge is shared by more than one lender in the ratio of
their outstanding amount. The prior consent of the existing charge holder(s) is required
by the company
 FIRST, EXCLUSIVE, RANKING, FURTHER CHARGE
• First Charge: A legal right under which the Creditor has the right to decide on what to do
with a property if the borrower fails to maintain the repayments
• Second Charge: Where a second loan is backed by the same assets on which a first charge
already exists, the subsequent charge holder is called "second charge". This comes into
effect once the holder of the first charge has sold the assets and received their dues. The
second charge holder is entitled to receive the residual value of assets once the first charge
holder has been satisfied.
• Ranking Charge: If no priority is given to charge, the charge as per “priority in time” is
called ranking charge
• Exclusive charge – The security under the exclusive charge is provided to a particular
lender only.
• Further charge – With the consent of the first charge holder, the particular assets on
which charge is already created may be provided to other lenders as second charge. In case
of liquidation of assets, the first charge holder has the right to recover his dues and the
balance is recovered by the second charge holder followed by others
RECEIVABLES & SECURITY AGREEMENT
• “Receivables” means a contractual or non-contractual right to receive money,
whether such right is existing, future, accruing, conditional or contingent and
includes rents; profits; dues; a money award by an arbitrator; monies payable as
salaries of employees; dividends; tolls, user-fees or any sum, by whatever name
called; monies payable under decrees; monies payable under guarantees;
actionable claims and all kinds of actual or contingent monetary obligations;
and excludes a right to payment of funds credited in a deposit account and right
to payment under a negotiable instrument; (Section 2 sub-section 39 of STA
2016)
• ”Security agreement” means an agreement, instrument or any other document
in writing that creates or provides for a security interest in favour of a secured
creditor;
 SECURITY INTEREST & TITLE DOCUMENT
• “Security interest” means a right, title, encumbrance or interest of any kind upon
movable property created or provided for by a security agreement in relation to a
transaction that in substance secures the payment or performance of a customer’s
obligation under a finance without regard to the form of the transaction or the
terminology used by the parties or the identity of the person who has title to the movable
property, and includes any charge, mortgage, hypothecation, fixed charge, floating charge,
assignment, lien, pledge, assignment of receivables by way of security and transactions
under which a secured creditor retains title such as a finance lease, hire purchase
agreement, sale and lease back arrangement, conditional sale agreement and retention of
title arrangement, having similar effect; (Section 2 sub-section 48 of STA 2016)
• “Title document” means a document in writing evidencing title to goods which is, by
law or custom, negotiable, and includes a bill of lading, dock warrant, warehouse receipt,
railway receipt, airway bill, truck receipts or similar record issued by a person in the
business of transporting or storing goods; (Section 2 sub-section 51 of STA 2016)
 EFFECTIVENESS OF A SECURITY INTEREST
(Section 5 of STA 2016)

• A security interest created in favour of a secured creditor

shall be effective against the customer only if.---
– (a) the customer and the secured creditor have agreed to create a
security interest in favour of the secured creditor;
– (b) in the case of a pledge and security interests created pursuant to
the fact that customer has also given possession of the collateral to
the secured creditor;
– (c) the secured creditor has given value to the customer; and
– (d) the customer has rights in the collateral or the power to transfer
rights in the collateral.
 SECURITY AGREEMENT
(Section 6 of STA 2016)

• The secured creditor and the customer shall enter into a security
agreement in terms of sub-section (2) for all security interests other
than security interests created pursuant to sections 11 and 12.
• (2) A security agreement shall state,---
– (a) the name and address of the secured creditor and customer;
– (b) the obligations secured by the security interest;
– (c) a description of the collateral in a manner that reasonably allows its
identification; and
– (d) the date of its execution.
 PERFECTION OF SECURITIES
A security interest may be perfected,---
(a) in the case of a pledge created by a company, by possession of the collateral by the secured creditor;
(b) in the case of a pledge created by an entity, by registration as provided under this Act; or
(c) in the case of any other security interest, by registration as provided under this Act.
• (2) Notwithstanding sub-section (1) and subject to sub-section (3),---
(a) a security interest in a right to payment of funds credited in a deposit account may be perfected only by
control;
(b) a security interest in collateral covered by a title document may be perfected only by possession of the title
document by the secured creditor; and
(c) a security interest in a negotiable instrument may be perfected only by possession of the negotiable instrument
by the secured creditor.
• Explanation.—Perfection of security interests under clauses (a), (b) and (c) shall not require registration as
provided under this Act.
• (3) Sub-section (2) shall not be applicable where a security interest in a right to payment of funds credited in a
deposit account or a security interest in collateral covered by title document or a security interest in a negotiable
instrument is—
(a) created as part of a hypothecation or floating charge that may otherwise be perfected by registration under
clause (c) of sub-section (1); or
(b) in the nature of proceeds of collateral that is otherwise perfected in accordance with section 15.
 SPECIAL PRIORITY RULES AS PER STA 2016
(SECTION 42 TO 49)

Priority of security interest based on retention of title

arrangement.—
• A security interest based on retention of title arrangement
and perfected by registration as provided under this Act
within ten days of the date of the security agreement
shall have priority over all other competing security
interests in the same collateral irrespective of the time of
perfection of such competing security interests.
 SPECIAL PRIORITY RULES

Priority between secured creditor and bailee providing services in respect of

the collateral.
• A secured creditor shall have priority over a bailee having a lien in respect of the
collateral under section 170 of the Contract Act, 1872 (IX of 1872), provided the
security interest was perfected before the bailment was created.
Priority between secured creditor and unpaid seller. 
• An unpaid seller having a lien in respect of the collateral under the Sale of Goods
Act, 1930 (III of 1930) shall have priority over a secured creditor.
Priority between secured creditor and a bank having a bankers’ lien. 
A bank having a bankers ‘lien under section 171 of the Contract Act, 1872 (DC of
1872) shall have priority over a secured creditor unless such bank has in writing
waived of its bankers’ lien.
 SPECIAL PRIORITY RULES
Priority of security interest in collateral covered by title
document.
A security interest in collateral covered by title document that
is perfected by possession has priority as against a security
interest in collateral covered by title document that is
perfected other than by possession
 SPECIAL PRIORITY RULES
Priority between a perfected floating charge and fixed charge
over the same collateral.
• A fixed charge perfected after an earlier perfected floating charge
over the same collateral shall have priority so long as such floating
charge has not crystallized into a fixed charge.
• An earlier perfected floating charge shall have priority over a
subsequently perfected fixed charge over the same collateral, where
—
• The security agreement creating such floating charge contains a
provision prohibiting the creation of any further security interest
over the same collateral; and
 SPECIAL PRIORITY RULES
Priority of security interest in a negotiable instrument
• A security interest in a negotiable instrument that is
perfected by possession has priority as against a security
interest in a negotiable instrument that is perfected other
than by possession.
• A security interest in a negotiable instrument is sub-ordinate
to the rights of a holder in due course
 ENFORCEMENT OF SECURITY INTEREST
A secured creditor may enforce the following security interests without the intervention of the courts:
•(a) a pledge;
•(b) an assignment of receivables by way of security;
•(c) a security interest in a negotiable instrument that is perfected by possession;
•(d) a security interest in a right to payment offunds credited in a deposit account that is perfected by control;
•(e) a security interest in a motor vehicle based on retention of title arrangement; and
•(f) a security interest in a title document that is perfected by possession.

At any time after a secured creditor decides to enforce a pledge after an occurrence of an event of default- the
secured creditor may give a written notice of demand to the customer in writing and require the customer to satisfy
his obligation within fourteen days from the date of receipt of the notice. The notice shall give details of the amount
payable by the customer and specify, the collateral that may be enforced in the event ofthe customer failing to
satisry his obligation:

Provided that the secured creditor may dispense with such notice if in the reasonable opinion of the secured creditor,
the collateral is in danger of being wasted, misappropriated or is perishable; or the amount of finance exceeds ten
million rupees and the security agreement provides for such dispensation.
 PERSONAL GUARANTEE
• By virtue of personal guarantee the borrower or other person
giving guarantee for the repayment of “purchase price” binds
himself personally to adjust the bank finance in case of default.
• The person furnishing personal guarantee shall be taken as
wearing the same shoe as that of borrower.
 LEGAL POSITION OF PERSONAL
GUARANTEE
• The said person shall be treated as “customer”, meaning
thereby the claim/suit shall be filed at the same time against
him and the borrower. The general perception that the guarantor
shall be contacted after the recovery efforts from borrower have
failed, does not carry any legal standing after promulgation of
Financial Institution (Recovery of Finances) Ordinance 2001.
• Section 2 (c) of The Financial Institution (Recovery of
Finances) Ordinance 2001 defines customer as “a person to
whom finance has been extended by a financial institution and
includes a person on whose behalf a guarantee or letter of credit
has been issued by a financial institution as well as A SURETY
OR AN INDEMNIFIER”
 PROPERTY OF THE PERSONAL GUARANTOR
• Section 16 of the Financial Institution (Recovery of Finances) Ordinance 2001 deals with the
issue.
• “Attachment before judgment, injunction and appointment of Receivers.- (1)
Where the suit filed by a financial institution is for the recovery of any amount through the
sale of any property which is mortgaged, pledged, hypothecated, assigned, or otherwise
charged or which is the subject of any obligation in favor of the financial institution as
security for finance or for or in relation to a finance lease, the Banking Court may, on
application by the financial institution, with a view to preventing such property from being
transferred, alienated, encumbered, wasted or otherwise dealt with in a manner which is likely
to impair or prejudice the security in favor of the financial institution, or otherwise in the
interest of justice 
• (a) restrain the customer and any other concerned person from transferring, alienating,
parting with possession or otherwise encumbering, charging, disposing or dealing with the
property in any manner;
• (b) Attach such property;
• (c) Transfer possession of such property to the financial institution; or
• (d) Appoint one or more Receivers of such property on such terms and conditions as it may
deem fit. “
 DP note why Redundant Now?
(For Commercial Banks)
• Contract never dies.
• Limitation?
• History of Banking Recovery Jurisdictions
• Civil Court Speedy Trials of Negotiatble Instruments.
• Banking Tribunal Act 1979
• Banking Tribunal Act 1984
• Banking Recovery Act 1997
• FIO 2001
IMMOVEABLE PROPERTIES
WHAT DOES LAND RECORD
MEAN?
GENERAL TYPES OF DOCUMENTS FOR LAND USE
• The Registered deed of absolute ownership; • Pass book;
Registered deed of allotment rights; • Fard (abstract from register Haqdaran),
• Registered deed of leasehold rights; • Girdawri (document narrating possession of
• Allotment letter/transfer letter of perpetual land)
proprietary rights; • Mutation
• • Notification/letter from Government for the
Allotment letter/transfer letter of lease hold
allotment/grant/lease of specific land;
rights;
• Certificate from Government regarding sale of
• Lease deed/s; Mutation (intiqaal); government land
PTD/PTO; • PT-1 (a property tax record narrating the record
• Bay-nama (Sale Deed); of an urban property).
• Hiba-naama (Gift Deed); • The transfer of allotment rights is often
• Tabadla-nama (Exchange Deed); registered with sub-registrars hence creating
• another optional document of title alongwith
Tuqseem-nama (Demarcation Deed);
allotment/transfer letter.
• Dastbardari-nama (Relinquishment Deed); • The transfer of leasehold rights are often
• Conveyance Deed (transfer of rights by the registered with sub-registrars hence creating
competent authority say court); another optional document of title alongwith the
lease deed.
GENERAL TYPES OF LAND MANAGEMENT RIGHTS IN
PAKISTAN
• Allotment rights by a development authority, • Holding of agricultural land by virtue of
• Allotment rights by a cooperative society, mutation alone, Holding of agricultural land
• Allotment rights by Federal/Provincial through tenancy,
Government, • Absolute ownership of urban land through a
• Allotment rights by Housing Limited deed registered under Transfer of Property Act
companies, (TPA) to be recorded in property tax department,
• Lease hold rights by army housing schemes, • Absolute ownership of rights (with land and
without roof) in a multistory building through a
• Leasehold rights by army controlled schemes
deed registered under Transfer of Property Act
under category,
(TPA) to be recorded in property tax department,
• Long Leasehold rights by private individuals,
• Absolute ownership of space rights (without
• Ordinary leasehold rights for possession (rent land and roof) in a multistory building through a
based holdings), deed registered under Transfer of Property Act
• Rights acquired through Grant of land by (TPA) to be recorded in property tax department,
Federal/provincial governments, • Holding by way of trust,
• Absolute ownership of agricultural land through • State Land,
a deed registered under Transfer of Property Act
• Holding of Army Controlled land with the high
(TPA),
security area.
• Holding of agricultural land by virtue of pass
book and mutation (in revenue record only),
DOCUMENTS & LAND RECORD SYSTEMS IN
PAKISTAN
 5 QS IN EVERY PROPERTY
• What is the type of right?
• Which department shall have record of specific property?
• How these departments handle these properties?
• Who approves maps?
• Address of property tells the type of property?
What is the type of right?
Free Hold/ Possessory
 TYPES OF LAND HOLDING THAT CAN BE
MORTGAGED
1. Absolute Ownership (Free Hold)
1. Freehold of Urban Land
2. Freehold of Urbanized Land
3. Freehold of Agricultural Land
2. Possession rights
I. Allotment Rights by Statutory Bodies
(authorities/coop societies registered
under the relevant act). (exclusive) READ THE FIRST DOCUMENT TO DETERMINE THE RIGHT

II. Leasehold Rights (exclusive)

III. Licence
IV. Easement
Which department shall have record of
specific property?
Federal Government , Cantonments, Development
Authorities, Board of Revenue, Cooperative
Housing Societies
 State

Federal Lands Military Lands Provinces

Federally Others (Property Tax,

Federally Federally Controlled Administered Housing & Urban Development Evacuee Property
Cooperative Housing Defence Purpose Development Cooperative
Federal Capital Administered Housing Schemes in Board of Revenue Authorities Trust, Government
Lands
Societies in other parts of
other parts of Lands (HUD)/Other alike Housing Societies departments owned
provinces controlling agency
provinces departments of like SBCA/ PHATA land)
Provincial etc
Administration of Provincial Governments
CDA owned private Land MEO Controlled Government Land Ownership &
schemes through Political Lands (Forest, Deserts & DEVELOPMENT allotment
Agents (DC/Acs) others ) Low Income AUTHORITIES
Housing Owned Schemes
Town Planning/ Map Federal Owned Private Lands Provincial Schemes Purchase of Land
land-without Administered Government Land from Private Approval of
approvals of Local
Government further grant of under cultivated under
sources/granted by maps/designs
Provincial
Controlled areas rights Cantonment lease/allotment Town Planning & Government through
Urbanization Development
master planning Authority/
Private Housing
Schemes Private Land DEVELOPMENT Local
AUTHORITIES
Approval of maps / Agricultural Government
Private Housing
designs of private Schemes
housing schemes
Approval of maps /
(within area)
designs of private
Private Land under housing schemes
small cities (within area)
(through Local
Government)-
Private Housing
Schemes

OWNERSHIP STRUCTURE OF
PAKISTAN
Colonies
How these departments handle these
properties?
Land holding Pattern & Town Planning
 State
TREE OF LAND RIGHTS IN
PAKISTAN
Provincial
Federal Lands Armed Forces
Governments

Lease (Management
Land Rights Development Institutions through Cantt
Boards

Institutions/ Authorities Evacuee Property Use for Defence

Board of Revenue / Development Town Planning
Authorities Trust Forces

Grant of of Lease
Grant of to Grant of Ownership
Lease of Agri land Shamilat/ Asaesh/
Ownership Rights to Development Allotment/Lease Lease/Allot Building Control
to individuals Development Authority Colonization
to Individuals
Authorities

Sub-Lease (in case

Inheritance/ sale/ gift/
exchange/ Conveyance Cannot sub-lease of multistory Lease
apartments)

Sub-lease for lands Allotment

Sale/Transfer of
Ownership
 Who approves maps?
Development Authorities/ Local Government/
Cantonment
 Military
Local
Development Estate Office/
Government/ Private house at
Agricultural land Authority Cantonment
TMO
converted into residential Board
Military/Defence forces
(in addition to Aks Shajra Private Housing scheme
owned Area under
that demarcates the into Metropolitan area
Cantonments
boundaries and maps
approves designs within
approved boundaries)

Private Housing Scheme

Development Authority Private Land in the
in small towns (not
owned Cantonment Limits
declared as Metropolitan)

Government Lands WHO APPROVES MAPS/DESIGN/TOWN PLANNING IN

allotted/ leased for
specific purpose
WHICH TYPES OF PROPERTY
Is it in Private Housing Scheme or
Government Scheme?
Word “Society” is used for Cooperative Housing
Society & Scheme is either Government/
Development Authority Scheme or Private Scheme
EXISTING STRUCTURE OF Scheme
HOUSING “SCHEMES” IN
PAKISTAN

Government Scheme Private Scheme

Development Authority Builder Owned

Special Sectors Schemes High Rise Buildings
Schemes Horizontal Schemes

Sub-Lease/Allotment of Agricultural Land

Low Income Housing Plot converted into Urban-
Scheme (Lease or ownership kept Ownership transfer to
with Builder) end users

Cooperative Society for Agricultural Land

High Rise Building with converted into Urban-
Industrial Schemes
transfer of rights to Ownership with Builder
Society or owners of flats (Allotment to end user)
Address of property tells the type of
property?
Type of property according to land holding type.
 INSTANCES OF TYPES
Free Hold Lease Allotment

Revenue Based Properties MEO properties Cooperative Societies

Urban/Property tax Properties Provincial Government owned Development Authorities

Properties in Sindh

Evacuee Trust Properties Hills/ Authorities Industrial Estates/ Government

special Schemes
ADDRESS LOGIC FOR PROPERTY

GENERALLY APPLICABLE-READING TITLE

NARRATES ALL
 Property Logic/ Use of Word in address Type of land holding right Who approves Map

House 41, Khayaban e Mujahid. DHA Phase 5,   Lease (In Sindh). Land Held by Cantonment and DHA

Karachi leasing through Lease

Housing Authority

House 5, Block 9, Clifton. Karachi Clifton is Cantonment Board Area Lease Cantt Board

Plot 48, SITE Area. Karachi Industrial Estate Allotment Industrial Estates operated through SBCA

House No 48, Steel Town Cooperative Housing Cooperative Housing Society Allotment See the map for ambit of Development Authority/

Society. Karachi Local Government

Survey No 12, Deh Mithun, Mirpur Khas. Wherever word Deh, Survey, Goth will be used in Sindh Freehold See the map for ambit of Development Authority/

Address, it will be a freehold/ Land Revenue, Land Local Government

Revenue

House No 73, Moon Road, Civil Lines, Larkana Word of “Civil Line” shows it is a “Colony” owned by Lease Larkana does not have metropolitan area and

Provincial Government through Land Revenue development authority hence local government

Department. Lease/Allotment is made and in some rare

instances Government has sold them auction.

Khasra No 55, Khewat 5, Mauza Thull, Dera Allah Words of “Khasra Number”, “Khewat”, “Khatoni”, Free hold See the map for ambit of Development Authority/

yar “Mauza” “Kot”, means free hold Local Government

May be private scheme

House Number 5, Airport Road. Multan Cantt. Word of cant means Lease Lease Cantt

99-BB, Phase 4, DHA. Lahore Except for in Sindh, All Development Authorities Allot in Allotment DHA
MODES OF CONVEYANCE
 MODES OF TRANSFER
1. Sale
2. Exchange
3. Gift
4. Relinquishment
5. Inheritance
6. Will
7. Conveyance
I. Court Decrees
II. Grant through Allotment
III. Lease
IV. Allotment
 SALE
• As per Section 54 of Transfer of Property Act 1882, “Sale” is a transfer of ownership in
exchange for a price paid or promised or part paid and part promised. Such transfer, in the
case of tangible immovable property of the value of one hundred rupees and upwards, or in
the case of a reversion or other intangible thing, can be made only by a registered instrument.

• In the case of tangible immovable property, of a value less than one hundred rupees, such
transfer may be made either by a registered instrument or by delivery of the property.
Delivery of tangible immovable property takes place when the seller places the buyer, or such
person as he directs in possession of the property.
 
• A contract for the sale of immovable property is a contract that a sale of such property shall
take place on terms settled between the parties. It does not, of itself, create any interest in or
charge on such property.
 EXCHANGE
• As per Section 118 of Transfer of Property Act 1882, when two
persons mutually transfer the ownership of one thing for the
ownership of another, neither thing or both things being money
only, the transaction is called an “exchange”. A transfer of
property in completion of an exchange can be made only in
manner provided for the transfer of such property by sale.
 SOME RULES ABOUT GIFT
• A gift of a property can be made in favor of a natural person (human being) or a
legal person, such as a company, trust etc.
• A gift can be made to any person out of love and affection i.e. daughter, teacher etc.
• A gift can be made to any person in return for his/her services rendered to the donee
i.e. a servant.
• A gift can be made to a daughter to equalize her share in inheritance.
• During lifetime, One can gift all my property or a part of it. One can make a gift of
the whole of that property of which he/she is the sole owner. However, one can
make a gift of his/her share if the property is jointly owned.
• A gift made during Marz-ul-Maut cannot take effect beyond 1/3 of a donee's estate,
after payment of funeral expenses and debts, unless the legal heirs of the deceased
endorse such a gift after the donor's death. A gift made in favour of an heir during
Marz-ul-Maut cannot take effect unless other legal heirs endorse such a gift after
the donor's death.
 INHERITANCE & SUCCESSION
• Inheritance is the process of the heir inheriting his ancestors'
Property. Succession governs how the inheritance would take place.
• Upon death of any family member, legal heirs languish in courts for
years before they are able to obtain Letters of Administration (for
immovable properties) and Succession Certificates (for movable
properties).
• Succession Certificate & Letter of Administration can be sought
from NADRA instead of Civil Court. (certain areas in Pakistan)
• https://succession.nadra.gov.pk/
 NADRA OR COURT?
• Letter of Administration & Succession Certificate Act 2019
was introduced initially for Islamabad territory and gradually
to be applied in different areas of Pakistan (section 1)
• NADRA can decline to process application in case of
“factual controversy” (dispute or claim) and the case will be
filed with Civil Court as per Succession Act 1925 (Section 5-
b)

(Letter of Administration & Succession Act 2019)

 SUCCESSION CERTIFICATE THROUGH NADRA

• Application initiation and deceased details

• Legal heirs and Assets Details
• Biometric Verification/Consent by Legal Heirs
• Document Scanning
• Advertisement in Newspaper
• Objection logging
• Case Approval
• Printing and Delivery
ADMINISTRATION OF THE ESTATE OF DECEASED
MUSLIM
The estate of a deceased Mahomedan is to be applied successively in payment of
1. His funeral expenses and death-bed charges;
2. expenses of obtaining probate, letters of administration, or succession certificate;
3. Wages due for service rendered to the deceased within three months next
preceding his death by any laborer, artisan or domestic servant;
4. Debts of the deceased according to their respective priorities (if any); and
5. Legacies (wills etc) not exceeding one-third (sunni/shia difference) of what
remains after all the above payments have been made.
6. The residue is to be distributed among the heirs of the deceased according to
the law of the sect to which he belonged at the time of his death
 RULES
• Upon death all the assets and civil liabilities are devolved to
legal heirs. Criminal Liability dies with the death.
• During the life time of an ancestor a legal heir cannot claim any
estate as right. Birth right is not recognized.
• Whether the murder was intentional or by accident, any act
committed by the heir apparent which causes the death of his
ancestor, punishable under the law, forbids him to inherit the
ancestor’s property.
 RULES
• Illegitimate child is considered to be the child of the mother
only.
• Hence, it cannot inherit from the father, and neither can the
father inherit from it.
• If it is proved that a person is missing for 7 years and has not
been heard of, then the burden of proof of his life is on the
person to affirm it. (Section 124 of Qanoon e Shahadat Order
1984)
 RULES
• A person who changes into a different faith than Islam or an
apostate is not entitled to inherit the property of a deceased
Muslim under Islamic law.
• If there is none from the classes of heirs, the properties of the
deceased are ultimately inherited by the State. 
• ESCHEAT is right of a government to take ownership of estate
assets or unclaimed property
 SUNNI LAW

Deceased
SHARER

RESIDUARY

DISTANT KINDRED
 SHIA LAW

Deceased
SHARER
RESIDUARY
 DECEASED

DISTANT
QURANIC SHARERS RESIDUARY
KINDRED

HUSBAND DESCENDANTS
WIFE ¼, 1/8
½,1/4 DESCENDANTS ASCENDANTS
SONS
SONS OF DECEASED OF DECEASED
SONS, DAUGHTERS OF SON
DAUGHTER OF SON
Daughter`s
ASCENDANTS Children & False Grand
Father/mother
MOTHER 1/6, True
descendants
Children`s
FATHER 1/6 Father
1/3 Grandfather daughters & Descendants
descendants of parents
Descendants (daughter/mot
PATERNAL PATERNAL GRAND
Full
of father her side)
GRANDFATHER 1/6 MOTHER 1/6 Consanguine Sons and sons of full
Brother/ Brothers & & Consanguine
SIsters Sister Brother
FULL SISTER CONSANGUINE
Descendants of
2/3 SISTER ½, 2/3 Paternal Grand
father
UTERINE BROTHER UTERINE Full Sons of full & SUNNI
1/6, 2/3 paternal Cong paternal Consanguine
SISTER 1/6, 2/3 paternal uncles LAW
uncles Uncles
 DECEASED

HEIRS BY HEIRS BY MARRIAGE

CONSANGUINITY (HUSBAND/WIFE
(SAME FATHER)

CLASS 1 CLASS 2 CLASS 3

GRAND PARENTS PATERNAL UNCLES &

PARENTS HOW HIGH AUNTS
SOEVER SHIA LAW
CLASSES OF HEIRS
MATERNAL UNCLES
& AUNTS
CHILDREN/ BROTHERS &
OTHER LINEAR SISTERS & THEIR
DESCENDANTS DESCENDANTS CHILDREN OF PATERNAL
AND MATERNAL UNCLES &
AUNTS
 WILL

• 'Will' is a method by which a person may instruct, during

his/her lifetime, about the treatment of his/her properties
after his/her death.
• A person uses a Will when he/she wants his/her property to
be treated after his/her death, differently from the personal
law of inheritance, which is applicable to him/her.
 WILL SUNNI & SHIA LAWS
• Although a Will can be made orally or in writing, it is better to reduce it to writing to avoid
complications of proving it through evidence before courts in legal proceedings as it will be more
difficult to prove an oral Will if it is disputed.
• In Islamic law, the two major sects, 'Sunni' and 'Shia' have different rules for making Wills.
• A Sunni Muslim can dispose off a maximum of 1/3 of his/her estate through a Will. The rest of
the property has to be compulsorily divided among the legal heirs of a deceased Sunni Muslim.
• A Shia Muslim can dispose off more than 1/3 of his/her estate through a Will. If the Will is
made by a Shia Muslim with respect to more than 1/3 of the estate, then this Will shall not be
valid unless other legal heirs give their consent.
• Revocation of Will
– Will can be changed during the lifetime of a person who has made a Will.
– A Will cannot be changed, by a person making a Will, when that person is on his/her deathbed.
– A Will can be revoked during the lifetime of a person who has made a Will.
– A Will cannot be revoked by a person making a Will when he/she is on his/her deathbed.
 POWER OF ATTORNEY
• General Power of Attorney means that Attorney may perform more than
one job on behalf of the Principal and all his acts will be binding on the
Principal as done by him and under his authority
• Irrevocable. If the Power of Attorney is executed for consideration then it
cannot be unilaterally revoked.
• Special Power of Attorney
• Registration Requirements
• Death of Principal
• Pecuniary Liability incurred
• Precautions
NOT ALL REGISTERED DOCUMENTS
ARE TITLE DEEDS
(THERE IS NO LAW FOR LAND TITLING IN PAKISTAN- WE ARE USING
REVENUE COLLECTION SYSTEMS FOR LAND TITLING)
 WHAT CAN BE CONVEYED
(TANSFER OF PROPERTY ACT 1882)

• What may be transferred. Property of any kind may be

transferred.(Section 6 of TPA 1882)
• The seller is bound to disclose to buyer any material defect in
the property or in the seller's title thereto of which the seller is,
and the buyer is not, aware, and which the buyer could not with
ordinary care discover. (Section 55 (1)(a) of TPA 1882)
• Latin maxim, nemo dat quod non habet, which means “no
one can transfer a better title than what he himself possesses”
 DISCLAIMERS OF
REGISTRATION ACT 1908
• “Registering officer not liable for thing bona fide done or
refused in his official capacity. No registering, officer shall be
liable to any suit claim or demand by reason of anything in
good faith done or refused in his official capacity”. (Section 86
of Registration Act 1908)
 DISCLAIMERS OF REGISTRATION RULES 1929
Registering officers not concerned with validity of document.---
• “Registering officers should bear in mind that they are in no way concerned with the
validity of documents brought to them for registration, and that it would be wrong for them
to refuse to register on any such grounds as the following, e.g., that the executant was
dealing with property not belonging to him, or that the instrument infringed that rights of
third persons not parties to the transaction, or that the transaction was fraudulent or opposed
to public policy. These and similar matters are for decision, if necessary, by competent
Courts of law and registering officers, as such, have nothing to do with them. If the
document is presented in a proper manner by a competent person at the proper office within
the time allowed by law and if the registering officer is satisfied that the alleged executant is
the person he represents himself to be, and if such person admits execution, the registering
officer is bound to register the document without regard to its possible effects”
• (Rule 135 of Registration Rules 1929
 POWER OF ATTORNEY
• General Power of Attorney means that Attorney may perform more than
one job on behalf of the Principal and all his acts will be binding on the
Principal as done by him and under his authority
• Irrevocable. If the Power of Attorney is executed for consideration then it
cannot be unilaterally revoked.
• Special Power of Attorney
• Registration Requirements
• Death of Principal
• Pecuniary Liability incurred
• Precautions
 CREATION OF CHARGE
MORTGAGE
• A mortgage is the transfer of an interest in specific immovable property
for the purpose of securing the payment of money advanced or to be
advanced by way of finance, an existing or future debt or the
performance of an engagement which may give rise to a pecuniary
liability.
CHARGE AS PER SECTION 100 OF TPA
• Where immovable property of one person by act of parties or operation
of law made security for the payment of money to another, and the
transaction does not amount to a mortgage, the latter person is said to
have a charge on the property; and all the rights and liabilities which
apply to a simple mortgage shall, so far as may be, apply to such
charge.
 TYPES OF MORTGAGE
1. Simple Mortgage also known as Registered Mortgage.
2. Mortgage by conditional sale.
3. Usufructurary mortgage.
4. English Mortgage
5. Mortgage by deposit of title deed (Equitable Mortgage).
6. Anomalous Mortgage.
 SIMPLE MORTGAGE
• Where, without delivering possession of the mortgaged
property, the mortgagor binds himself personally to pay the
mortgage money, and agrees expressly or impliedly, that, in the
event of his failing to pay according to his contract, the
mortgagee shall have a right to cause the mortgaged property to
be sold and the proceeds of sale to be applied, so far as may be
necessary, in payment of the mortgage-money, the transaction
is called a simple mortgage and the mortgagee a simple
mortgagee
 REGISTERED MORTGAGE HOW CREATED
• Registered Mortgage is created by executing mortgage deed (being a contract between bank and
customer). This agreement is registered with the registrar of assurances and requisite stamp fee and
registration fee as per provincial stamp duty schedule, is paid.
• Following steps are involved.
– Stamp Papers as per required stamp duty
– Printing of stamp papers as per standard format of IB-22/23
– Appointment of Local Commission or Presentation of deed with both the parties before sub-registrar.
(whereapplicabale)
– Signature of the both parties
– Two Witnesses
– Report of Local Commission (in case of appointment of local commission.
– Submission of Documents to Registrar
– Rectification of any Objection raised by Registrar
– Re-submission to Registrar
 REGISTERED MORTGAGE HOW CREATED
• Formalities pertaining to photo registrar.
• The date of making of a document needs not be the date of execution and subsequent
registration. As per section 49 of the Registration Act, the document after its
registration shall be deemed to be effective since its execution.
• Registration of deed by the registrar and recording the same in Book 1. The registrar
shall affix following details on every document after registration,
– Document Number.
– Book No (which is always Book 1)
– Volume No.
– Sub-Volume No (if used).
– Date of Registration.
– Stamp of Registration Authority.
– Signature of Registration Authority.
 EQUITABLE MORTGAGE
• “Where a person delivers to a creditor or his agent documents of title to immoveable property with intent
to create a security thereon, the transaction is called a mortgage by deposit of title deeds”. (Section 58-f of
TPA 1882).
• Equitable mortgage is created by mere deposit of title deed, however to further secure the interest of the
bank a “memorandum” of deposit of title deed (MODTD) is sought from borrower.
– The equitable mortgage is created when the documents are deposited with the bank with the
intention to create equitable mortgage for seeking finance.
– The memorandum of deposit of title deeds (MODTD/IB-24) is executed to recite the
arrangements made.
– The IB-24 needs not be compulsorily registered with registrar of assurances.
– The date of MODTD/IB-24 should be same as of IB-6 (Agreement for Financing).
– The date of IB-6 and IB-24 should ideally be the date of date of disbursement (allowing limit
thoughtless of the fact that first withdrawal is made afterwards).
 USES OF LANDS
• URBAN PROPERTIES
• AGRICULTURAL PROPERTIES
• COMMERCIAL PROPERTIES
• INDUSTRIAL PROPERTIES
 RECOVERIES
LEGAL STRATEGY & FORECLOSURE
  
FINANCE ACCOUNT

Symptoms / Early warning signs

Watch-listing
Timely action Timely action

Loan would become performing Loan would be classified on time / subjective

based criteria

Remedial Actions/ Collection Department/ Recovery

Companies

Not willful default Willful default

Suit filing Placement on

(civil/criminal)
ECL/ FIA

Sale of liquid securities

Invoking Sec-15 & 16

Suit filing

Borrower does not come up for Borrower come-up for settlement

settlement

Decree

Bank’s direct negotiated

settlements
Execution

Resulting Resulting
Recovery Recovery

Write-off/Waiver Write-off/Waiver
(if any) (if any)
 CLASSIFICATION
R-8
• Banks/DFIs shall observe the prudential guidelines given at Annexure-V in the matter
of classification of their asset portfolio and provisioning there-against on time based
criteria.
• Subjective evaluation of performing and non-performing credit portfolio shall be
made for risk assessment and, where considered necessary, any account including the
performing account will be classified, and the category of classification determined on
the basis of time based criteria shall be further downgraded.
• Such evaluation shall be carried out on the basis of
– credit worthiness of the borrower,
– its cash flow, operation in the account,
– adequacy of the security, inclusive of its realizable value and
– documentation covering the advances.
Classification Determinant Income Treatment Provisions to be made
Substandard 90 days overdue To be kept in Provision of 25%
Principal or Mark up Memorandum account Less
unless realized in cash Liquid assets
Benefit off mortgage/
properties/ pledge etc

Doubtful 180 days overdue As above Provision of 50 %

Principal or Mark up Less
Liquid assets
Benefit off mortgage/
properties / pledge etc

Loss One year or more overdue As above Provision of 100 %

Principal or Mark up Less
Liquid assets
Benefit off mortgage/
properties / pledge etc
 BENEFIT OF COLLATERAL/SECURITY HELD
– Liquid assets,
– pledged stock,
– plant & machinery under charge,
– property having registered or equitable mortgage
– pari-passu charge shall be considered on proportionate basis of outstanding
amount
– Hypothecated assets, excluding plant & machinery under charge, shall not be
considered.
• The evaluators should also mention in their report the assumptions made, the calculations / formulae / basis used
and the method adopted in determination of the values i.e. the Market Value and Forced Sale Value (FSV)
• The valuation process will include conducting a “Full-scope Valuation” of the assets in the first year and then
followed by “Desktop Valuations” in the second and third year. Full-scope Valuation shall be valid for three
years from the date of last Full-scope Valuation.
• In case the loan amount exceeds Rs 100 million, the Desktop Valuation will be done by the same evaluator, who
had conducted the Full-scope Valuation
 BENEFIT OF COLLATERAL/SECURITY HELD
Liquid Assets:
•Guarantees issued by domestic banks/DFIs (regardless of their rating) when received as collateral by banks/DFIs will be
treated at par with liquid assets.
•Valuation of Liquid Assets shall be determined by the bank / DFI itself and verified by the external auditors.
•However, in the case of pledged shares of listed companies, values should be taken at market value as per active list of Stock
Exchange(s) on the balance sheet date.
•Valuation of shares pledged against loans/advances shall be considered only if such shares are in dematerialized form in the
Central Depository Company of Pakistan (CDC), otherwise these will not be admissible for deduction as liquid assets while
determining required provisions.
Mortgaged Property and Plant & Machinery under Charge:
•Valuation of residential, commercial & industrial property (land and building only) and plant & machinery would be
accepted as determined by evaluators in accordance with the criteria.
Pledged Stocks:
•In case of pledged stocks of perishable and non-perishable goods, forced sale value should be provided by evaluators, and
such valuation should not be more than six months old, at each balance sheet date.
•The goods should be perfectly pledged, the operation of the godown(s) or warehouse(s) should be in the control of the
bank/DFI and regular valid insurance and other documents should be available.
•In case of perishable goods, the evaluator should also give the approximate date of complete erosion of value
 BENEFIT OF COLLATERAL/SECURITY HELD
Category of Asset Forced Sale Value Benefit allowed
from the date of classification

Mortgaged residential, commercial and • 75% for first year

industrial properties (land & building • 60% for second year
only) • 45% for third year
• 30% for fourth year, and
• 20% for fifth year
Plant & Machinery under charge • 30% for first year
• 20% for second year, and
• 10% for third year

Pledged stock • 40% for first, second, and third year

 BENEFIT OF COLLATERAL/SECURITY HELD
• The additional impact on profitability arising from availing the
benefit of FSV shall not be available for payment of cash or stock
dividend/bonus to employees.
• Heads of Credit of respective banks/DFIs shall ensure that FSV used
for taking benefit of provisioning is determined accurately as per
guidelines contained in PRs and is reflective of market conditions
under forced sale situations; and iii.) Borrower-wise details of all
such cases where banks/DFIs have availed the benefit of FSV shall
be maintained for verification by State Bank’s inspection team
during regular/special inspection.
 BPRD CIRCULAR 13 OF 2016
• Restructuring means such concessions to the borrower, due to
borrowers’ financial difficulty, which the bank/DFI would not
otherwise consider. Restructuring normally involves modification
in the terms & conditions of the financing / securities and
generally includes, amongst others, alteration of repayment
period, repayable amount,  installment amount,  mark-up rates
(due to reasons other than competitive pricing) etc.
• Rescheduling means such concession in the grace period or
modification in the repayment dates of principal loan amount
(without changing overall loan tenor), due to borrowers’ financial
difficulty, which the bank/DFI would not otherwise consider.
 RESCHEDULING/RESTRUCTURING
• The rescheduling/restructuring of non-performing loans shall not change the
status of classification 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 and at least 10% of the total restructured loan
amount (principal + mark-up), is recovered in cash.
• OR borrower has repaid or adjusted in cash at least 35% of the total restructured loan
amount, condition of one year retention period will not apply.
• b) The unrealized mark-up on loans (declassified after
rescheduling/restructuring) shall not be taken to income account unless at
least 50% of the amount is realized in cash. Any short recovery in this
respect will not impact the de-classification of this account if all other criteria
 RESCHEDULING/RESTRUCTURING
• All fresh loans granted by the banks/DFIs to a borrower after
rescheduling/ restructuring of its existing facilities may be monitored
separately, and will be subject to classification under this Regulation
on the strength of their own specific terms and conditions
• However, the accounts classified and provision made on the advice of
State Bank of Pakistan will not be declassified / provision will not be
reversed without prior approval of State Bank of Pakistan, except in
cases where cash recovery has been made through customer’s own
sources, to the extent that balance provision is maintained in
accordance with this regulation.
 STEP IN RECOVERY AND APPLICABLE LAW
STEP LAW
Illegal possession/sale/ alienation of Mortgaged Property Section 20 FIO 2001.

Sale of moveable (pledged) property Section 176 of Contract Act

Sale of Moveable (other than pledged) property Section 19 of FIO 2001 read with FIO Rules 2018
after decree
Sale of Immoveable Property  Section 15 of FIO 2001 read with FIo rules 2018
(before decree- from banking Court)
 Collector/ Tehsildar/ Mukhtiarkar under Land
revenue Act 1967
Filing of civil banking suit  Section 9 FIO 2001
 For NAPHDA related properties- With Adjudicator.
Filing of criminal complaint in case of dishonored FIO 2001 (section 20)
cheque
Sale of immoveable property  FIO 2001 (section 19) after decree
 Collector/ Tehsildar/ Mukhtiarkar under Land
revenue Act 1967
Auctions and objection FIO 2001, objections to be filed under Order 21 Rule 67,
68, 90
 BANKING COURT PROCEEDINGS
• Plaint (section 9) with applications under section 16 and section 151 of CPC
• Permission to Leave & Appear to Defend (PLA). (section 10)
• Interim Decree under Section 11/ Interim or Final Decree under section 14 (mortgage based)/PLA
allowed
• If PLA allowed then following steps will be observed. If decree is issued it will convert into execution.
• Framing of Issues
• Questions of Fact
• Questions of Law
• Arguments
• Witnesses
• Decree
• Appeal
• District Court
• Single Bench High Court
• DB High Court (Intra Court Apeal)
• Supreme Court
• Execution. (section 19) with or without intervention of court.
• Criminal Complaint under section 20
 Steps Heading Details
 1 Forward the case to • The case must initially be forwarded to a chartered accountant firm, which has
a chartered neither been the Bank’s statutory auditor nor worked on any assignment with
accountant firm the Bank in the last three years. Rule 3 (a)(i)
• The Chartered accountant shall give a 7 days’ notice to the parties. Rule 3 (a)
(iii)
• The chartered accountant firm shall present its report within thirty days

2 Issuance of demand • Issuance of notice with 14-14-30 days for the repayment of liability determined
notices to the by CA firm.
customer

3 Evaluation of the • Three valuers are to be hired within 7 days of the expiry of the 30 days’ notice.
property Rule 3 (b) (i)
• After 15 days of appointment, the valuers shall independently evaluate the
value of the mortgaged property and determine its forced sale price. Rule 3 (b)
(ii)

4 Publication in • a publication in one reputable English and Urdu newspaper in the province in
newspaper which the mortgaged property is situated
• above information must be sent to the mortgagor and other mortgagees and all
interested parties through a notice. Section 15 (c)
 Steps Heading Details
  The auction • commence after 15 days of the newspaper publication of the notice
• The Highest bidder is required to deposit 25% of the bid amount, within 2 business
days and the remaining shall be deposited within 15 days of initial deposit
• financial institution can participate in the bidding process, and must bid 10% higher
than the highest bidder
• In case the Bank wins the bid, it must then send a 3 days’ notice to the mortgagor to
match the Bank’s bid and purchase the property
• If there is no bidder the auction must be cancelled and the entire exercise repeated.
If upon 3 auctions no bid is received, the Bank may purchase the property at a price
10% higher than the reserve price, after duly serving the mortgagor with a notice to
this effect

  Delivery of possession • for the purpose of executing and registering the sale deed of the mortgaged
and post-sale process property, the Bank shall be considered as the duly authorized attorney of the
mortgagor
• sale deed can only be registered / executed after 7 days of the auction
• Within 14 days of the sale, the Bank must file proper accounts of the sale proceeds in
the banking Court

  Injunction • The Banking Court may grant an injunction on grounds that (i) there is no mortgage
(ii) there has been fraud in the mode or conduct of the method of sale and the
customer has suffered loss which cannot be compensated by damages.
• all disputes relating to the sale of mortgaged properties and all related matters shall
be determined solely by the Banking Court “to the exclusion of any other court of
law, including the high court
 CRIMINAL ACTION
Section 20 of FIO 2001

• 20. Provisions relating to certain offences.- (1) Whoever 

• (a)dishonestly commits a breach of the terms of a letter of hypothecation, trust receipt or any
other instrument or document executed by him whereby possession of the assets or properties
offered as security for the re-payment of finance or fulfillment of any obligation are not with
the financial institution but are retained by or entrusted to him for the purposes of dealing with
the same in the ordinary course of business subject to the terms of the letter of hypothecation or
trust receipt or other instrument or document or for the purpose of effecting their sale and
depositing the sale proceeds with the financial institution; or
• (b) makes fraudulent mis-representation or commits a breach of an obligation or
representation made to a financial institution on the basis of which the financial institution has
granted a finance; or
• (c)subsequent to the creation of a mortgage in favour of a financial institution, dishonestly
alienates or parts with the possession of the mortgaged property whether by creation of a lease
or otherwise contrary to the terms thereof, without the written permission of the financial
institution; or
 CRIMINAL ACTION
Section 20 of FIO 2001

• (d)  subsequent to the passing of a decree under section 10 or 11, sells,

transfers or otherwise alienates, or parts with possession of his assets or
properties acquired after the grant of finance by the financial institution,
including assets or properties acquired benami in the name of an ostensible
owner shall, without prejudice to any other action which may be taken
against him under this Ordinance or any other law for the time being in
force, be punishable with imprisonment of either description for a term
which may extend to three years and shall also be liable to a fine which may
extend to the value of the property or security as decreed or the market
value whichever is higher and shall be ordered by the Banking Court trying
the offence to deliver up or refund to the financial institution, within a time
to be fixed by the Banking Court, the property or the value of the property
or security.  
 CRIMINAL ACTION
Section 20 of FIO 2001

• Explanation - Dishonesty may be presumed where a customer has not deposited the sale proceeds of
the property with the financial institution in violation of the terms of the agreement between the
financial institution and the customer.
• (2) Whoever knowingly makes a statement which is false in material respects in an application for
finance and obtains a finance on the basis thereof, or applies the amount of the finance towards a
purpose other than that for which the finance was obtained by him, or furnishes a false statement of
stocks in violation of the terms of the agreement with the financial institution or falsely denies his
signatures on any banking document before the Banking Court, shall be guilty of an offence
punishable with imprisonment of either description for a term which may extend to three years, or
with fine, or with both.
• (3) Whoever resists or obstructs, either by himself or on behalf of the judgment debtor, through the
use of force, the execution of a decree, shall be punishable with imprisonment, which may extend to
one year, or with fine, or with both.
 CRIMINAL ACTION
Section 20 of FIO 2001

• (4) Whoever dishonestly issues a cheque towards re-payment of a finance or

fulfillment of an obligation which is dishonoured on presentation, shall be
punishable with imprisonment which may extend to one year, or with fine or
with both, unless he can establish, for which the burden of proof shall rest on
him, that he had made arrangements with his bank to ensure that the cheque
would be honoured and that the bank was at fault in not honouring the cheque.
• (5) Where the person guilty of an offence under this Ordinance is a company
or other body corporate, the chief executive by whatever name called, and any
director or officer involved shall be deemed to be guilty of the offence and shall
be liable to be prosecuted against and punished accordingly.
• (6) All offences under this Ordinance shall be bailable, non-cognizable and
compoundable.  
.

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