KARACHI, Oct 26: The State Bank's draft guidelines for IPF or infrastructure project financing suggest that such financing should not exceed 30 per cent of the equity of the bank or development finance institution offering IPF.
The draft guidelines put on the SBP website say that banks/DFIs would be free to extend loans for the IPF up to a maximum period of 20 years.
The guidelines say the following would be considered infrastructure projects: roads; railways; telecommunication; power generating units, power transmission or distribution projects; natural gas exploration and distribution projects; water supply, irrigation, water treatment system, sanitation and sewerage system; LPG extraction, distribution and marketing projects, LPG import terminal; dams, barrages, canal projects, ports, channel dredging, shipping, inland waterway, container terminals; airports, petroleum extraction projects, refineries, pipelines, etc.
The guidelines further say that exposure to any group in various infrastructure projects should not exceed 50 per cent of bank's/DFI's equity, with a maximum limit on funded facilities up to 35 per cent of bank's/DFI's equity. These guidelines further say that banks/DFIs shall ensure that their total exposure to the IPF does not exceed their equity.
The SBP has sought recommendations and suggestions about these guidelines, before finalizing the same, from all stakeholders particularly bankers, financial institutions and businessmen. The last date for submitting suggestions and recommendations is November 30, 2004.
The draft guidelines propose that banks/DFIs while taking any exposure on an infrastructure project, shall ensure that the total exposure availed by any borrower from financial institutions does not exceed 10 per cent the borrower's equity.
These guidelines say that the banks/DFIs shall classify and make provisioning for the IPF under a given formula. According to that formula, banks/DFIs will require no provisioning on IPF classified as other asset especially mentioned or OAEM i.e. in cases where the amount recovered is less than 75 per cent of the amount receivable and it has become overdue by more than 180 days.
But they will have to make a 20 per cent provisioning against substandard IPF i.e. in cases where the amount recovered is less than 60 per cent of the amount receivable and it has become overdue by more than one year.
The banks and DFIs will have to make a 50 per cent provisioning against doubtful IPF i.e. in cases where the amount recovered is less than 40 per cent of the amount receivable and it has become overdue by more than two years. They will have to make a 100 per cent provisioning against loss on IPF i.e. in cases where the amount recovered is less than 20 per cent of the amount receivable and it has become overdue by more than three years.