KARACHI, Oct 22: The State Bank has allowed commercial banks to establish subsidiaries for the purpose of asset management and financial & investment advisory services under the Non-Banking Finance Companies Rules 2003, says a State Bank circular issued here on Wednesday.

The circular says the banks desiring to set up any subsidiary for undertaking any activity mentioned in the said rules shall strictly observe the following guidelines:

(i) Banks desiring to set up any NBFC under the NBFC rules will do so through a separate subsidiary after obtaining prior approval from the State Bank of Pakistan.

(ii) The subsidiary to be set up for the purpose shall be a public limited company.

(iii) The transactions undertaken/services provided by the subsidiary setup under the NBFC rules should not create any financial obligation, where contingent or otherwise, on the balance sheet of the holding company or otherwise.

Senior bankers reached by Dawn said the SBP move will go a long way in enabling commercial banks to diversify their activities that has become necessary because of financial sector reforms and resultant increase in competitiveness.

They say this will also help the corporate sector in more than one ways. “They will be able to make more profitable investments,” using the services of financial & investment advisory subsidiaries of banks, said head of investment banking at a foreign bank.