May 18, 2002	Saturday	Rabi-ul-Awwal 5, 1423

KARACHI, May 17: The State Bank has made certain changes in one of Prudential Regulations or the set of rules that govern banks lending towards the private sector. Senior bankers say these changes will help the private sector borrow more from the banks.

The State Bank has announced these changes through a circular (BPD No. 10) issued here on Friday. Whereas the SBP has kept the per party borrowing limit unchanged at 30 per cent of unimpaired capital and reserves it has relaxed the ways in which the limit would be worked out.

These relaxation would allow a larger number of banks to lend higher amounts of money and at the same time facilitate a greater number of companies to borrow more.

The first relaxation is that the central bank has allowed the banks to include revaluation of reserves upto 50 per cent on account of fixed assets. But it is subject to the condition that the maximum outstanding against fund-based financing facilities do not exceed 20 per cent of unimpaired capital and reserves.

Unimpaired capital and reserves means the capital and reserves at hand after meeting accounting requirements e.g. after making provisions against loan losses etc.

The second relaxation is that the central bank has allowed the banks to deduct while working out the per party limit 50 per cent of the repayment bank guarantees accepted as collateral. But the condition is that the collateral must be of unconditional nature and payable on demand by banks rated A or equivalent by a credit rating agency approved by the SBP.

The third and perhaps the most important relaxation is that the central bank has also allowed the banks to deduct the face value of Pakistan Investment Bonds, Treasury Bills and National Saving Scheme securities lodged by the party as collateral: Earlier deduction of the face value of only Federal Investment Bonds was allowed while working out per party limit.

The State Bank has allowed similar relaxations in the ways in which per party limit would be worked out by non-bank financial institutions.

In a separate circular (BPD No. 11) issued here on Friday the SBP said the per party limit would remain unchanged at 30 per cent of the NBFIs unimpaired capital and reserves. But it allowed all the three relaxation that it has granted to banks for working out the unimpaired capital and reserves for this purpose. “The combined impact of these relaxations would be that more banks would be able to lend higher amounts of money and more parties would be able to borrow more from the banks,” said chief of operations of National Bank R. A. Kaleemi. “At the same time the appetite for government securities would also increase in the market”.

But the question is whether these measures would help increase the private sector credit offtake?

“That is too early to say,” replied Kaleemi when asked by Dawn over telephone. Other senior bankers who refused to be identified also said though the relaxation in Prudential Regulation no. 1 would encourage many borrowers to borrow more from the banks only time would tell whether these would impact on overall lending to the private sector. A senior central banker who also refused to be named made a similar statement.

The government is keen on increasing private sector lending to fuel investment and business activities to give GDP the required boost. In the first nine months of this fiscal year (July/March 2001/2002) private sector credit disbursement stood at Rs35.9 billion against the full year target of Rs98.1 billion.