1. Presented By:
TEHSEEN KHALIQ (ROLL#59)
ADEELA SALEEM(ROLL#48)
ADEEL AHMAD(ROLL #10)
M .TAYYAB(ROLL #46)
HASNAIN ALI(ROLL#60)
Prudential Regulations
(State Bank of pakistan)

2. Agenda of this Session
2
 What are prudential Regulations?
 Prudential regulations
 For Small & Medium Enterprise Financing
 For consumer financing

3. What are Prudential
Regulations?
3
• Prudential—to reduce the level of risk bank creditors are
exposed to (that is, to protect depositors);
• Regulations which are governed by laws.

4. PR’s by State Bank of Pakistan
4
 Prudential regulations
 For agriculture financing
 For corporate / commercial banking
 For Small & Medium Enterprise Financing
 For consumer financing
 For Microfinance Banks

5. SME’s
 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.

6. PR for SME’s (Contd.)
 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.
6

7. PR for SME’s (Contd.)
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)

8. PR for SME’s (Contd.)
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)

9. PR for SME’s (Contd.)
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-Around-
Time
(Banks/DFIs shall not take more than 30 working days for the
credit
approval process)

10. PR For Medium Enterprises
Financing
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)

11. PR For Medium Enterprises
Financing
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)

12. PR for Consumer Financing
12
 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

13. PR for Consumer Financing (Contd.)
13
 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.

14. R E G U L A T I O N S
 R1:- FACILITIES TO RELATED PERSONS AND
UTILIZATION OF CLEAN LOANS FOR INITIAL PUBLIC
OFFERINGS (IPOs)
Facilities to Related Persons: The consumer finance facilities
extended by
banks/DFIs to their directors, major shareholders, employees and
family members
of these persons shall be at arms length basis and on normal terms
and conditions applicable for other customers of the banks/DFIs.
R2:- LIMIT ON EXPOSURE AGAINST
(TOTAL CONSUMER FINANCING
Banks/DFIs shall ensure that the aggregate exposure under all
consumer financing
facilities at the end of first year and second year of the start
of their consumer

15. R E G U L A T I O N S
 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

16. R E G U L A T I O N S
 R-6 MARGIN REQUIREMENTS
 REGULATIONS FOR CREDIT CARDS
 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.

17. R E G U L A T I O N S
 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.

18. R E G U L A T I O N S
 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.

19. R E G U L A T I O N S
 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.
 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

20. CLASSIFICATION DETERMINANT TREATMENT OF
INCOME
PROVISION TO
BE MADE
1 2 3 4
Substandard Where markup/
interest or
principal is
overdue by 90
days or more
from the due
date
Unrealized mark-
up/interest
to be kept in
Memorandum
Account and not to
be
credited to Income
Account
except when
realized in cash.
Unrealized mark
up/interest
already taken to
income
account to be
reversed and
kept in
Memorandum
Account
Provision of 25%
of the
difference
resulting from the
outstanding
balance of
principal less the
amount of
liquid assets
realizable
without recourse
to a Court
of Law and
Forced Sale
Value (FSV) of
mortgaged
properties to the
extent of
50% of such FSV.

21. REGULATIONS FOR AUTO
LOANS
Doubtful Where markup/
interest or
principal is
overdue by 180
days or more
from the due
date
As above Provision of 50% of
the
difference resulting
from the
outstanding balance
of
principal less the
amount of
liquid assets
realizable
without recourse to
a Court
of Law and Forced
Sale
Value (FSV) of
mortgaged
properties to the
extent of
50% of such FSV

22. Loss Where markup/
interest
or principal is
overdue by
180 days or
more from the
due date.
As above Provision of
100% of the
difference
resulting from
the outstanding
balance of
principal less
the amount
of liquid assets.

23. R E G U L A T I O N S
 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.
 REGULATION R-23:-CLEAN LIMIT PER PERSON
FOR PERSONAL LOANS
(Banks/DFIs may assign personal loan limits to one person
with a maximum
unsecured limit not exceeding Rs 1,000,000)
(Personal Loans and
Credit Cards 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)

24. R E G U L A T I O N S
 REGULATION R-24:-
(In cases, where the loan has been extended to
purchase some durable goods/items,
including personal computers and accessories
thereof, the same will be
hypothecated with the bank/DFI besides other
securities, which the bank/DFI may
require on its own)

25. R E G U L A T I O N S
 REGULATION R-25:-
(The maximum tenure of the loan shall not exceed 5
years)
REGULATION R-26 :-
(In case of Running Finance/Revolving Finance,
it shall be ensured that at least 15%
of the maximum utilization of the loan during the
year is cleaned up by the borrower
for a minimum period of one week)

26. R E G U L A T I O N S
 REGULATION R-27:-
(The personal loans shall be classified and
provided for in the following manner)

27. Key Points
R stands For
 RISK MANAGEMENT
G Stands For
 Corporate Governance
M Stands For
Money Laundering

28. Key Term
O Stands For
 Operations

29. Thanks for your time…
Tehsin khaliq…