Circulars/Notifications - Banking Policy Department  
 BPD Circular No. 5
April 12, 2002  

The Chief Executives,

All Banks / NBFIs,

Dear Sir/ Madam,

MAINTENANCE OF CURRENT ASSETS TO CURRENT LIABILITIES RATIO
PRUDENTIAL REGULATION-V / RULE-8(a) OF THE RULES OF BUSINESS FOR NBFIs
 

 

Please refer to the instructions contained in para 1 of Prudential Regulation-V and Rule-8(a) of Rules of Business for NBFIs in terms of which banks / NBFIs are required to ensure that the ratio of current assets to current liabilities of a borrower must not be lower than 1:1. 

2.         It has been observed that some borrowers who have availed trade finance from banks under Export Finance Scheme, are classifying these borrowings as long term liabilities in their balance sheets. This enables the borrowers to understate their current liabilities, as also to improve their current ratios. 

3.         As the financing under Export Finance Scheme is primarily for 180 / 270 days its classification as long-term liability, for whatsoever reason, is against the spirit of the Scheme. Banks / NBFIs are, therefore, advised to ensure that these loans are classified by them as “current liabilities” for the purpose of calculating the current ratio of the borrower under Prudential Regulation V/ Rule-8 of NBFIs Rules of Business. 

4.         All other instructions on the subject shall, however, remain unchanged.

Please acknowledge receipt.

Yours faithfully,
(Muhammad Kamran Shehzad)
Director

BPD Circulars/ Circular Letters issued in 2003
       
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