State Bank of Pakistan (SBP) has made amendments to the prudential regulations for commercial and corporate banks. The banking authority, issued a circular on Friday, 7th Oct, to notify the concerned entities.
The new amendments relate to loan restructuring, rescheduling, and related income recognition and modification of the core definitions of these terms.
There are certain categories of loans that are exempted from the the requirement mentioned in the amendments. These include the principle of an amount less than 300 million, allowed for infrastructure financing, granted to public sector entities, approved for infrastructure funding and those that are secured against government guarantees.
The new amendments also emphasize that status of classification and provisioning will not change only because of restructuring or rescheduling while reporting to the Credit Information Bureau (CIB). It is permissible to show the status of loans as “rescheduled” or “restructured” instead of “overdue”.
The terms of “rescheduling” and “restructuring,” primarily refer to the concession to borrower due to his financial difficulty. This concession can be in the form of alteration in repayment period, repayment amount, installment amount through the modification of terms and conditions.
The respective banks and DFIs (Development Finance Institutes) decide the criterion to judge the financial difficulty according to credit and risk management policies approved by the board. Further, the parameters that set these policies include the borrower’s credit worthiness, borrower’s industry, financial ratio analysis and other financial indicators of both the parties.
Earlier, the revised version of prudential regulations for commercial/corporate banks and DFIs in Pakistan was issued by SBP in 2014.