KARACHI, Nov 1: The State Bank on Tuesday reclassified loans and advances and now the loans and advances overdue by 90 days will be classified as substandard, 180 days as doubtful and one year or more as loss.

The SBP introduced amendments in prudential regulations regarding the classification and provisioning for loans and advances aimed at adopting international best practices by banks and development financial institutions (DFIs) in classification and provisioning against their loans and advances portfolio to further strengthen the soundness and stability of the banking system.

The SBP in a circular says that with the vital progress and improvement in banking, which has yielded significant benefits in the form of increased competition, product innovation, technological upgradation and diversification of business activities, “a host of new risks have also surfaced”.

The classifications for small and medium enterprises financing, auto loans, housing finance, personal loans and consumer financing have been changed.

“The revised criteria will come into force with immediate effect,” said the SBP circular. The amendments in prudential regulations would bring changes in classification, including an increase in provisioning requirement for substandard category to 25 per cent.

The revised criteria will be applicable to all types of financing facilities i.e. short, medium and long-term and to corporate, SME and consumer financing, except for trade bills (import/export or inland bills) and credit cards which will continue to be classified as loss if not paid or adjusted within 180 days from due date.

The benefit of forced sale value (FSV) of collateral will be available against the financing facilities of Rs5 million and above only, with immediate effect. The benefit of FSV of collateral will be further restricted to financing facilities of Rs10 million and above only, with effect from December 31, 2006.

“The State Bank will review the position to withdraw the benefit of FSV altogether after December 31, 2006 and separate instructions in this regard will be issued to banks and DFIs,” said the circular.