The President/Chief Executives,
All Banks/DFIs

Dear Sirs/Madam,

PRUDENTIAL REGULATIONS FOR AGRICULTURE FINANCING

In exercise of the powers vested in it, the State Bank of Pakistan is pleased to issue Prudential Regulations for Agriculture Financing, which have been developed after thorough consultations with major stakeholders, particularly banks.

2. The captioned regulations are intended to provide a broader regulatory framework to the banks/DFIs. These may be considered only as minimum standards and the banks/DFIs are advised to take sufficient measures to ensure that agricultural financing is undertaken in a prudent manner.

3. The banks/DFIs should put in place appropriate management information system to monitor the quality of agricultural portfolio on a continuous basis and take appropriate decisions at the right time. They are encouraged to diversify their agricultural portfolio in terms of geographical areas, types of financing, etc. to avoid the risks of concentration of credit. They are also encouraged to extend agricultural financing on the basis of future cash flows, instead of relying solely on the collateral. Standard cash flows can be estimated for different crops and these cash flows can then be adjusted for specific borrowers, keeping in view the quality of land and efficiency of the individual farmers, etc.

4. While the margin requirements have generally been withdrawn by the State Bank and these are also not being prescribed under the new Prudential Regulations, the banks/DFIs may determine suitable margin requirements in their agriculture financing policies, keeping in view the quality and other characteristics of the collateral.

5. For better understanding of customers, banks/DFIs are encouraged to translate their application forms, checklists of all required documents and brochures in Urdu and other regional languages. Further, Banks/ DFIs are advised to ensure circulation of these regulations among all their offices/ branches for meticulous compliance in letter and in spirit.

6. It may be noted that Prudential Regulations for Agriculture Financing pertain only to the Risk Management area (credit), under the prefix “R”; as such, other areas viz. Corporate Governance, Know Your Customer & Anti Money Laundering and Operations, will be governed by Prudential Regulations for Corporate/ Commercial Banking under “G”, “M”, and “O” categories, respectively.

7.The newly issued Prudential Regulations have been placed at SBP web-site http://www.sbp.org.pk/publications/prudential/index.htm which may be accessed/ downloaded for consultation and ease of reference at any time. In case of any clarification, the banks/ DFIs are welcome to approach SBP through the Help Desk of Banking Policy Department and Agricultural Credit Department.

8. Please acknowledge receipt.