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Article (7) Repayment Installments

C 29/2011 Effective from 29/3/2011

a) Deductions from salary or regular income of any borrower, for all types of loans extended by banks and finance companies together, including, but not necessarily restricted to, car and private housing loans, overdraft facilities, and credit cards facilities, must not exceed 50% fifty percent of his gross salary, and any regular income from a defined and specific source at any time.

b) Should a loan or a banking facility's repayment period extends to the retirement age, banks and finance companies must schedule reduction of these loans or facilities in such way as to allow deduction of only 30% of the income (or pension salary).

c) Banks and finance companies may only take from the customer the number of postdated cheques covering the installments, and of value not exceeding 120% of value of the loan or the debit balance.

Clarifications and Guidelines (Notice No. 2901/2011)
  1. All the lenders are obliged to carry out proper due diligence to ascertain the applicants’ liabilities and income sources so that total installments including payments on account of credit card do not exceed 50% of their gross salary and other regular income.
  2. Personal loans will be setup for a maximum tenor of 48 months. However if a borrower retires before full repayment, his loan will be restructured from the date of retirement so that his total repayments do not exceed 30% of income (or pension salary).
  3. Existing loans will continue in accordance with the present arrangement and documentation. However no top ups, deferrals or rescheduling will be permitted beyond eligibility in terms of salary multiplier, tenor and repayment percentage.
  4. Banks should formulate specific policy on top ups and rescheduling in order to restrict their frequency. It should be ensured that there is no ‘ever greening’ of loans to disguise problem or delinquent loans.
  5. In case of Islamic banks, they have to ensure that in case of prepayment, adequate rebate is allowed to a customer so that final charge to him does not exceed the level given in Annexure 2 to the Circular.

Banks are permitted to defer up to two instalments in a year at their discretion. (NOTICE NO. 4501/2011)