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BPRD Circular No. 8
All Scheduled Banks

Please refer to BCD Circular No. 15 dated August 29, 1992 as amended from time to time.

The following amendments are made in the existing Prudential Regulations with immediate effect:-

Para-1 of the above regulation may be replaced as under:--

Contingent liabilities of a bank shall not exceed at any point of time 10 times of its paid up capital and general reserves (free of losses). In case of branches of foreign banks operating in Pakistan, capital will mean capital maintained under Section 13(3) of the Banking Companies Ordinance, 1962. Following shall not constitute contingent liabilities for the purpose of this regulations:--

a) Bills for collection.
b) Forward foreign exchange contract, weightage of 50% shall be given to bid/mobilisation advance/performance bonds.
c) Obligations under Letters of Credit and Letters of Guarantee to the extent of cash margin retained by the bank, and;
d) Letters of Credit/Guarantee issued on behalf of the Federal/Provincial Government and established through State Bank of Pakistan provided payment is guaranteed.

The following new Para may be added after the words "clean facilities granted to finance the export of commodities eligible under Export Finance Scheme shall be exempt from the per party limit on clean facilities.":--

Financing covered by Export Credit Guarantee Insurance Scheme may also be excluded from per party limit of Rs 100,000/- on clean facilities.

Para 3 (a) of Regulation-IV may be substituted by the following:--

3(a) Banks shall strictly observe the regulation when sanctioning fresh/additional credit facilities. Following relaxation is hereby granted upto 30-06-1999 for renewing existing facilities:--

Total accommodation availed by a 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 the extended period.

The above regulation may be substituted by the following:--

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

i) upto 30-0601998 0.9:1
ii) As from 30-06-1999 1:1

Current maturities of long-term debt not yet due for payment may be excluded form the current liabilities for the purpose of calculating these ratios. Lease rental receivable within the next twelve months as disclosed in the notes to the annual audited accounts shall be treated as current assets 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 ratio not exceeding 60:40 provided the differential between required and existing ratio is made good during the extended period i.e. upto 30th June, 1999. Provided further that where a different debt equity ratio has been laid down by the Government the ratio laid down by Government shall apply.

(c) Loans to individual borrowers not exceeding Rs 500,000/- per borrower shall be exempt form the application of this regulation.

A new Para-4 may be added at the end of regulation as under:-
4. Banks are advised to obtain clearance form the State Bank of Pakistan before fixing any charges (relating to exports) other than these mentioned in this regulation.

Para 1 & 2 of the above regulation may be substituted as under:--

1. The non-reconciliation of Pak/Inter-Bank Accounts and non-settlement of Suspense Account entries for long periods have the potential of posing serious risks to banks. With a view to guard against these risk inherent in neglecting timely settlement of entries booked in the Inter-Branch Accounts 9by whatever name called) and the Suspense Accounts, it is hereby directed as follows:--

i) All the entries outstanding in the Inter-Branch Accounts and/or Suspense Account as on 31st March, 1997 shall be reconciled and cleared at the earliest but not later than 30th June, 198.

ii) entries booked in the Pak/Inter-Branch Accounts and/or Suspense Account on or after 1st April, 1997 must be reconciled/cleared and taken to the proper head of account within a maximum period of 30 days from the date entry is made in the above-mentioned accounts.

2. Entries made in Suspense Account on account of tax at source, advance tax paid, tax recoverable, advance expense on new branches, advance rent paid, legal expenses, mark-up/service charge recoverable, Qarze Hasna for marriage, and forward cover fee, may be classified as "Other Assets" and the above instructions shall not be applicable to the foregoing items. Besides, entries relating to frauds and forgeries, cash theft and looted, payments against equity, scrips/debt instruments and contributory payments of capital nature to be capitalised at a later stage shall also be excluded from the purview of the said regulation. The exclusion of entries relating to frauds and forgeries, cash theft and looted will, however, be subject to the condition that the same are cleared immediately on receipt of insurance claims.

Please acknowledge receipt.

Yours faithfully


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