3. Prudential :- to reduce the level of risk bank
creditors are exposed to (that is, to protect
depositors)
Regulations which are governed by laws.
PRUDENTIAL REGULATION
4. Prudential regulation is a type of financial
regulation that requires financial firms to
control risks and hold adequate capital.
defined by capital requirements, liquidity
requirements, by the imposition of
concentration risk (or large exposures)
limits, and by related reporting and public
disclosure requirements .
PRUDENTIAL REGULATION
5. Prudential regulations includes the following.
Minimum capital requirements.
Liquidity or loan portfolio diversification standards,
limitations on a bank's investment portfolio or lines
of business, and other restrictions intended to limit
the type of risks which a banking firm may
undertake.
EXPLANATION
6. Prudential regulations
For agriculture financing
For corporate / commercial banking
For Small & Medium Enterprise Financing
For consumer financing
For Microfinance Banks
PR’S BY STATE BANK OF PAKISTAN
7. Small and Medium Enterprises (SMEs) are one of the
largest and the most important sector of Pakistan's
economy.
Approximately 3.2 million business enterprises in
Pakistan.
Enterprises employing up to 99 persons constitute
over 90% of all private enterprises in the industrial
sector and employ nearly 78% of the non-agriculture
labor force.
Contribute over 30% to the GDP .
25% of exports of manufactured goods besides
sharing 35% in manufacturing value added.
SMALL AND MEDIUM ENTERPRISES
(SMES)
8. The potential for this sector to contribute to the
economic development objectives of Pakistan,
including generating employment,
increasing incomes, and
reducing poverty is the justification for a strategy of
support to unleash the sector’s potential.
Keeping this in view, SBP issued separate Prudential
Regulations for SMEs in 2003.
PR FOR SME’S
9. Regulation SE R-1: Definition of Small Enterprise:- (NO
Employees up to 20 & ANNUAL sale up to 75 million)
Regulation SE R-2: Per Party Exposure Limit (avail exposure
up to Rs 15 million from a single Bank/DFI or from all
Banks/DFIs.)
Regulation SE R-3: Requirement of Audited Accounts (Not
Required , But Financial A/c is required for the counter
verification)
Regulation SE R-4: Repayment Capacity of the Borrower and
Cash Flow Based Lending (Banks/DFIs shall use
relevant/practical cash flow estimation techniques and other
proxies to assess repayment capacity of SE borrower)
PR FOR SME’S
10. Regulation SE R-5: Collateral Valuation (loans up to Rs. 5
million, banks/DFIs at their own discretion may either use the
services of their own evaluating staff )
Regulation SE R-6: Recovery of Outstanding Dues (make use
of mobile and wireless technologies/devices for instant
updating of cash collection from field into their books and
accounts, and also sending confirmatory SMS/alert messages
to borrowers)
Regulation SE R-7: General Reserve against Small Enterprise
Finance ( The banks/DFIs shall maintain general reserve at
least equivalent to 1% of the secured SE portfolio and 2% of
the unsecured SE portfolio)
PR FOR SME’S
11. Regulation SE R-8: Classification and Provisioning for
Loans/Advances (on the base of time based and open based
criteria ,bank take benefit of forces sale value of collateral)
Regulation SE R-9: Restructuring/Rescheduling of Loans (The
banks/DFIs may reschedule/restructure problem loans as per
their own policy duly approved by their Board of Directors)
Regulation SE R-10: Minimizing Turn-AroundTime (Banks/DFIs
shall not take more than 30 working days for the credit
approval process)
PR FOR SME’S
12. Regulation ME R-1: Definition of Medium Enterprise (A
Business Entity , No of employees Mfg & Services 21-250 &
Trading 21-50. Sales above 75 million up to 400 million)
Regulation ME R-2: Repayment Capacity and Cash Flow Based
Lending (on the basis of assets conversion cycle and expected
future cash Flows)
Regulation ME R-3: Per Party Exposure Limit (Not exceed Rs
100 million. The total exposure (including leased assets)
availed by a single Medium Enterprise from the banks/DFIs
shall not exceed Rs 200 million)
PR FOR MEDIUM ENTERPRISES
FINANCING
13. Regulation ME R-4: Requirement of Audited Accounts (copy of
financial statements duly audited by a practicing Chartered
Accountant, from the Medium Enterprise who is a limited
company or where the exposure of a bank/DFI exceeds Rs 10
million)
Regulation ME R-5: Classification and Provisioning For Assets
Loans/Advances (Annexure-V, time based criteria, The
rescheduling/restructuring of non-performing loans shall not
change the status of classification of a loan/advance)
PR FOR MEDIUM ENTERPRISES
FINANCING
14. The amendments made in the Prudential Regulations for
Consumer Financing during January 31, 2009 to January 31,
2011 have been incorporated in this updated version for ease
of reference of the users.
The Prudential Regulations for Consumer Financing do not
supersede other directives issued by State Bank of Pakistan in
respect of areas not covered here.
Any violation or circumvention of these regulations shall
render the bank/DFI/officer(s) concerned liable for penalties
under the Banking Companies Ordinance, 1962.
PR FOR CONSUMER FINANCING
15. REGULATION R-1
LIMIT ON EXPOSURE TO A SINGLE PERSON/GROUP
REGULATION
Single Group
Total exposure<30% of bank
equity.
Total exposure<50% of bank
equity.
Fund based exposure<20%
of bank equity.
Fund based exposure<35%
of bank equity.
16. REGULATION
LIMIT ON EXPOSURE AGAINST CONTINGENT
LIABILITIES
Contingent liabilities of a bank < 10 times of its equity
Not constitute contingent liabilities
a) Bills for collection
b) Obligations under Letters of Credit
c) Letters of credit guaranteed by the State Bank
d) Non-fund based exposure to the extent covered by
liquid assets.
REGULATION
18. R3:- TOTAL FINANCING FACILITIES TO BE COMMENSURATE
WITH THE INCOME
R4:- GENERAL RESERVE AGAINST CONSUMER FINANCE
R-5:-BAR ON TRANSFER OF FACILITIES FROM ONE CATEGORY
TO ANOTHER TO AVOID CLASSIFICATION
R5A:- RESCHEDULING/RESTRUCTURING OF NON-PERFORMING
CONSUMER LOANS
R E G U L A T I O N S
19. R-6 MARGIN REQUIREMENTS
REGULATION O-1
The banks/DFIs should take reasonable steps to satisfy
themselves that cardholders have received the cards, whether
personally or by mail. The banks/DFIs should advise the card
holders of the need to take reasonable steps to keep the card
safe and the PIN secret so that frauds are avoided.
REGULATION O-2:-Banks/DFIs shall provide to the credit card
holders, the statement of account at monthly intervals, unless
there has been no transaction or no outstanding balance on the
account since last statement.
REGULATION O-3:- Banks/DFIs shall be liable for all transactions
not authorized by the credit card holders after they have been
properly served with a notice that the card has been lost/stolen.
REGULATIONS FOR CREDIT CARDS
20. REGULATION O-4:- In case the cardholders make partial
payment, the banks/DFIs should take into account the partial
payment before charging service fee/mark-up amount on the
outstanding/billed amount so that the possibility of charging
excess amount of mark-up could be avoided.
REGULATION O-5:-Due date for payment must be specifically
mentioned on the accounts statement. If fine/penalty is
agreed to be charged in case the payment is not made by the
due date, it should be clearly mentioned in the agreement.
REGULATIONS FOR CREDIT CARDS
21. REGULATION R-7:-
Bank/DFI may issue credit card to one person with a
maximum unsecured limit not
exceeding Rs 1,000,000, subject to mandatory credit check
& prescribed debt burden
and condition that total unsecured credit card limits availed
by that person from all
banks/DFIs does not exceed Rs. 1,000,000
REGULATONS
22. Regulations R-8
CLASSIFICATION AND PROVISIONING FOR ASSETS
LOANS/ADVANCES: Evaluation shall be carried out on the
basis of credit worthiness of the borrower restructuring of
non-performing loans shall not change the status of
classification of a loan / advance etc The unrealized mark-up
on loans shall not be taken to income account unless at least
50% of the amount is realized in cash.
INVESTMENTS AND OTHER ASSETS: The banks shall classify
their investments into three categories
Held for Trading
Available for Sale
Held to Maturity
REGULATIONS
23. Regulation R-8:
Quoted Securities: Government Securities will be valued at
PKRV (Reuter Page). TFCs, PTCs and shares will be valued at
their market value. The difference between the market value
and book value will be treated as surplus/deficit.
Treatment of Surplus/deficit: The measurement of
surplus/deficit shall be done on portfolio basis. The
surplus/deficit arising as a result of revaluation of ‘Held for
Trading’ securities shall be taken into Profit & Loss Account.
Other Assets: Classification of Other Assets and provision
required there-against shall be determined keeping in view
the risk involved and the requirements of the International
Accounting Standards.
REGULATIONS
24. REGULATION R-9:- commercial vehicles also used for personal
purposes.
REGULATION R-10:- The maximum tenure of the auto loan
finance shall not exceed seven years.
REGULATIONS
