KARACHI, July 29: Banks and development finance institutions (DFIs) have been asked to get prior approval from the State Bank while purchasing shares of a company and a new limit has been set for this purpose.

The SBP though a circular on Saturday notified that banks and DFIs would obtain prior approval in writing from the State Bank while purchasing shares of a company in excess of five per cent of their paid-up capital or 10 per cent of the capital of investee company, whichever is lower.

In the case of investee company, a 10 per cent limit will be calculated by taking 10 per cent of the number of its paid-up shares.

In the case of investing bank, a five per cent limit will be calculated by taking five per cent of paid-up shares of the bank and then multiplying with their face value.

“In this respect, bank and DFI’s request will be considered in the light of the nature of relationship of the investing bank and the investee company,” said the SBP circular.

Further, other factors, such as financial standing of the investing bank, its aggregate investment portfolio, experience in managing the same, efficacy of internal controls, etc., will also be taken into account.

In case shares in excess of the above limit are acquired by the bank or DFI through settlement of a facility or by any other means, the information to this effect will be conveyed to the State Bank within three days of the acquisition of such shares. Furthermore, the shares so acquired should be disposed of within one year to comply with the limits.The circular said the instructions would not have a retrospective effect.