1:Importance of Prudential Regulation from regulators point of view 2:Types of Prudential Regulations provide by SBP 3:Definitions of: Exposure limits for banks: Limit On Exposure Against Contingent Liabilities: Minimum Requirement For Different Types Of Consumer Finance: General Reserves Against Consumer Finance: Window Dressing: Margin Requirement: Maximum Card Limit: Maximum Consumer Loans Tenure:

1. Question no: 1
Importance of Prudential Regulation from
regulators point of view:
Prudential regulations are code of conduct or guide lines through which state bank
supervise the institutions shows standard format for activities and to decrease their risk
taking. It is important because it provide safety to depositor’s fund, keep financial
stability and uniformity in the sector. To strengthen and regulate the banking business
by bringing advancements in governing bodies and banks. Creating an efficient system
for credit risks as well as rule abiding by the banking facilities.
The Prudential Regulations for Corporate / Commercial Banking 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.
Question no: 2
Types of Prudential Regulations provide by SBP:
The Prudential Regulations for Consumer Financing covers Risk Management (R) and
Operations (O) aspects. Regulations for Corporate/Commercial Banking may be referred
to for areas concerning corporate governance and customer due to diligence and anti
money laundering. However, in case of international operations, the Prudential
Regulations of host country shall prevail.
Further 7 sub types of these are given below:
 Regulations for credit card.
 Regulations for auto loan.
 Regulations for housing finance.
 Regulations for personal loans including loans for the purchase of consumer
durables.
 Regulation for Exposure against shares / TFCs and acquisition of shares.

2.  Regulation for Classification and provisioning for assets.
 Regulation for Payment of dividend.
Question no: 3
Exposure limits for banks:
The total outstanding exposure (fund based and non-fund based) by a bank / DFI to any
single person shall not at any point in time exceed 30% of the bank’s / DFI’s equity as
disclosed in the latest audited financial statements, subject to the condition that the
maximum outstanding against fund based exposure does not exceed 20% of the bank’s /
DFI’s equity.
The total outstanding exposure (fund based and non-fund based) by a bank / DFI to any
group shall not exceed 50% of the bank’s / DFI’s equity as disclosed in the latest audited
financial statements, subject to the condition that the maximum outstanding against
fund based exposure does not exceed 35% of the bank’s / DFI’s equity.
Limit On Exposure Against Contingent Liabilities:
1. Contingent liabilities of a bank / DFI shall not exceed at any point in time 10 times of
its equity. Following shall not constitute contingent liabilities for the purpose of this
regulation:
 Bills for collection.
 Obligations under Letters of Credit and Letters of Guarantee to the extent of cash
margin retained by the bank / DFI.
 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 credit
rating agency on the approved panel of State Bank of Pakistan or Standard
&Poor’s, Moody’s, Fitch-Ibca or Japan Credit Rating Agency (JCRA).
 Non-fund based exposure to the extent covered by liquid assets.
 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.

3. 2. 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.
Minimum Requirement For DifferentTypes Of
Consumer Finance:
Apart from the specific regulations given under each mode of financing separately,
general requirements laid down here should also be followed by the banks/DFIs while
undertaking consumer financing. It may be noted that these are the minimum
requirements and should not in any way be construed to restrict the role of the
management of the banks/DFIs to further strengthen the risk management processes
through establishing comprehensive credit risk management systems appropriate to
their type, scope, sophistication and scale of operations. The Board of Directors of the
banks/DFIs are required to establish policies, procedures and practices to define risks,
stipulate responsibilities, specify security requirements, design internal controls and
then ensure strict compliance with them.
General Reserves Against Consumer Finance:
The banks/DFIs shall maintain a general reserve at least equivalent to 1.5% of the
consumer portfolio which is fully secured and 5% of the consumer portfolio which is
unsecured, to protect them from the risks associated with the economic cyclical nature
of this business. The above reserve requirement will, however, be maintained for the
performing portion only of consumer portfolio.
Window Dressing:
Banks / DFIs shall refrain from adopting any measures or practices whereby they would
either artificially or temporarily show an ostensibly different position of bank’s / DFI’s
accounts as given in their financial statements. Particular care shall be taken in showing
their deposits, MCR, non-performing loans/assets, provisioning, profit, inter-branch and
inter-bank accounts, etc.

4. Margin Requirement:
Banks/DFIs are free to determine the margin requirements on consumer facilities
provided by them to their clients taking into account the risk profile of the borrower(s)
in order to secure their interests. However, this relaxation shall not apply in case of
items, imports of which are banned by the Government. 9 Banks/DFIs will continue to
observe margin restrictions on shares/TFCs as per existing instructions under Prudential
Regulations for Corporate/Commercial Banking (R-6). Further, the restrictions
prescribed under paragraph 1.A of Regulation R-6 of the Prudential Regulations for
Corporate/Commercial Banking will also be applicable in case of Consumer Financing.
State Bank of Pakistan shall continue to exercise its powers for fixation/reinstatement of
margin requirements on consumer facilities being provided by banks/DFIs for various
purposes, as and when required.
Maximum Card Limit:
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. 1,000,000.1 Banks/DFIs may merge the clean limits to
single person for Credit Cards and Personal Loans subject to the condition that total
clean limit availed by him/her from all banks/DFIs does not exceed Rs. 2,000,000 at any
point in time. It is reemphasized that the aggregate clean limit of the borrower should
not exceed Rs. 2000,000 in any case.2 Banks/DFIs shall ensure that overall credit card
and personal loan 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, subject to the condition that the overall unsecured/clean facilities on account of
credit card and personal loan of that individual does not exceed Rs 2,000,000.3 The loan
secured against liquid securities shall, however, be exempted from the above limit. The
loans against the securities issued by Central Directorate of National Savings (CDNS)
shall be subject to such limits as are prescribed by CDNS/Federal Government/State
Bank of Pakistan from time to time. For Charge Cards, pre-set spending limits generated
by the standardized systems, as is the global practice, shall be allowed
Maximum Consumer Loans Tenure:
The maximum tenure of the loan shall not exceed 5 years. However, this period may be
extended to 7 years for loans/advances given for educational purposes, provided that

5. disbursement of such loans shall directly be made by the bank/DFI to the educational
institution and the borrower shall not be allowed to utilize/withdraw cash directly from
the bank/DFI under this head forany otherpurpose.