NBFCs financing: SBP amends Regulations 5 and 9

KARACHI (December 30 2003): The State Bank of Pakistan (SBP) on Monday amended the Regulations 5 and 9, besides issuing clarification regarding Regulation No 6 with a view to facilitating Non-banking Financial Companies (NBFCs) to obtain funds from banks/DFIs.

The amendments would also help them obtain financing from multilateral agencies on the guarantee of banks/DFIs. Besides this, the step will enable banks/DFIs to underwrite the debt instruments issued by NBFCs.

According to SBP Circular No 42, the following amendments have been made for corporate/ commercial banking:

(A) Regulations R-5:

Linkage between financial indicators of the borrower and total exposure from financial institutions.

Para 1: In case of Non-Banking Finance Companies (NBFCs), the total exposure (ie fund-based and/or non-fund based) availed by any NBFC from financial institutions shall not exceed 10 times of its equity, without the restriction of fund-based exposure to 4 times as in the case of other types of borrowers.

Para 4: The regulation shall not apply in cases where exposure is taken on units/projects revived as a consequence of settlement under CRISU, CIRC and the SBP Circular No 29 dated 15th October 2002, for a period of five years from the date of such settlement.

(B) Regulation R-9:

Assuming obligation on behalf of NBFCs:

Para 1: Bank/DFIs may underwrite TFCs, Commercial Papers and other debt instruments issued by NBFCs, and issue guarantees in favour of multilateral agencies for providing credit to NBFCs, provided such exposure of the banks/DFIs should remain within the per party exposure limit as prescribed in Regulation R-1.

The State Bank of Pakistan in order to eliminate confusion, issued following clarifications in Prudential Regulations R-6 on acquisition of shares/TFCs and financing against them:

(a) Para IA(c) prohibits exposure by banks/DFIs against the security of unlisted TFCs, but does not prohibit them from making direct investment in unlisted TFCs.

(b) For the purpose of Para 15, shares will also include units of all forms of Mutual Funds, but will exclude NIT Units.

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