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BCD Circular No. 11
19^th July, 1992

All Commercial Banks.

Dear Sirs,

PRUDENTIAL REGULATIONS FOR BANKS

Please refer to BCD Circular No. 1 and No. 6 respectively dated 7-1-1992 and 4-2-1992. The regulations have been reviewed in consultation with trade, industry and banks and the following further modification/clarifications are issued:-

REGULATION – I

LIMIT OF BANKS EXPOSURE TO A SINGLE PERSON
1. Para 4(iii) on page 3 of BCD Circular No. 1 dated 7-1-1992 has been modified to read as under:- "(iii) Pre-shipment/ post-shipment credit provided to finance exports of goods covered by letters of credit/firm contracts."

2. Para 4(iv) of BCD Circular No. 1 dated 7-1-1992 has been modified to read as under:- "Letters of credit established for import of plant and machinery."

REGULATION – IV

LINKAGE BETWEEN A BORROWER’S EQUITY AND TOTAL BORROWINGS FROM BANKS.
1. Paras 2 and 3 on page 4 of BCD Circular No. 1 dated – 7-1-1992 are substituted by the following paragraph:-

(a) "Banks shall strictly observe the regulation when sanctioning fresh/additional credit facilities. Following relaxation is hereby granted upto 30-6-1996 for renewing existing facilities:-

Total accommodation availed by 8 borrower from banks/financial institutions may exceed 10 times of the capital and reserves (free of losses) of the borrower provided the borrower injects additional equity during each year (92-93, 93-94, 94-95 & 95-96) an amount equal to 1/4th of the difference between the equity prescribed by this Regulation and the existing equity.

Example

(b) "Export finance and finance provided to ginning and rice husking factories and finance provided on the basis of lien foreign currency deposits shall be excluded from the borrowings when determining linkage between equity and borrowing for the purpose of this Regulation. The borrowers availing this relaxation shall plough back 20% of the net profit each year until such time that they are able to borrow without this relaxation."

2. For the purpose of this Regulation sub-ordinated loans shall be counted as equity.

REGULATION – V

MAINTAINANCE OF DEBT-EQUITY RATIO
Para 1 and 2 of Regulation v on page 4 of BCD Circular No. 1 dated 7-1-1992 are substituted by the following:-

"(1) Banks shall ensure that:

(a) Current asset to current liability ratio of the borrower does not fall below the minimum indicated hereunder:-

Current maturities of long term debt not yet due for payment may e excluded from the current liabilities for the purpose of calculating these ratios.

(b) Fresh/additional accommodation in the form of long term debts shall be provided on the basis of a debt equity ration not exceeding 60:40. The position of existing facilities maybe regularised by 30-6-1996. The borrowers shall inject during each year(92-93, 93-94, 94-95 and 95-96) an amount equal to 1/4^th of the difference between the required equity and the existing equity. Provided that where a different debt equity ratio has been laid down by the Government the ratio laid down by Government shall apply.

REGULATION - VI

FINANCING FACILITIES AGAINST SHARES
Para 3 of the Regulation VI on page 5 of BCD Circular No.1 dated 7.1.1992 is substituted by the following paragraph:-

"Facilities against the shares of listed companies shall be subject to the following minimum margins:-

(a) Where the market value does not exceed the preceding 12 months average market value.-20%

(b) Where market value exceeds the preceding 12 months average market value but does not exceed twice the preceding 12 months average market value.-40%

(c) Where the market value exceeds twice the preceding 12 months average market value.-50%

Please acknowledge receipt.

Yours faithfully,

(R.A. CHUGHTAI)
DIRECTOR

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