In order to promote standardization, consistency and in line with international best practices, following amendments in definitions and regulation R-8 of Prudential Regulations have been incorporated in respect of rescheduling / restructuring and income recognition of advances.

Definitions:
Grace Period means period during which principal amount is not repayable and mark-up amount is continued to be serviced as per the terms and conditions of the financing.

Rescheduling means such concession in the grace period or modification in the repayment dates of principal loan amount (without changing overall loan tenor), due to borrowers’ financial difficulty, which the bank/DFI would not otherwise consider.

For rescheduling and restructuring, banks/DFIs shall define the term ‘financial difficulty and its indicators’ in their board approved credit / risk management policies, inter alia, based on financial ratios and indicators, days past due, nature of facility and borrowers credit worthiness, borrowers’ industry, etc

Regulation R-8:
The Para 3(b) of regulation R-8 of Prudential Regulations for Corporate/Commercial Banking is amended as follows:

“The unrealized mark-up on loans (declassified after rescheduling/restructuring) shall not be taken to income account unless at least 50% of the amount is realized in cash. However, any short recovery in this respect will not impact the de-classification of this account if all other criteria (meeting the terms and conditions for at least one year and payment of at least 10% of outstanding amount by the borrower) are met. The banks/DFIs are further directed to ensure that status of classification, as well as provisioning, is not changed in relevant reports to the State Bank of Pakistan merely because a loan has been rescheduled or restructured. However, while reporting to the Credit Information Bureau (CIB) of State Bank of Pakistan, such loans/advances may be shown as ‘rescheduled/restructured’ instead of ‘overdue’. For syndicate loans, only the ‘Agent Bank (security trustee)’ is to report the rescheduling / restructuring, on behalf of syndicate members, to eCIB database”.

Following new paragraph is being incorporated after Para 3(a) of regulation R-8 of Prudential Regulations for Corporate/Commercial Banking:

“Any accrued mark-up on such financing facilities which have been rescheduled / restructured for more than once and have been maintained in regular category, should not be taken to income account, unless the terms & conditions of rescheduling / restructuring are fully met for a period of at least one year (excluding grace period, if any) from the date of such rescheduling / restructuring and at least 10% of the total rescheduled / restructured amount (principal + mark-up) is recovered in cash. However, the above condition of one year, prescribed for accrued mark-up not to be transferred to income account, will not apply in case borrower has repaid or adjusted in cash at least 35% of the total rescheduled / restructured loan amount (principal + mark-up), either at the time of rescheduling/restructuring agreement or later-on during the grace period, if any”.

The following will, however, be exempt from the above requirement.

Financing facilities;

• secured against Government guarantees,
• fully secured by liquid securities,
• allowed to Public Sector Entities,
• allowed for Infrastructure financing,
• of principal amount of less than Rs300 million”.
  
  

In short term finance facilities administered as tranches under a single master limit, (i) threshold limit of Rs300 million, and, (ii) multiple rescheduling / restructuring counter will be reckoned on tranche basis.

Banks/DFIs which require implementation time for up-grading their systems, inter alia for reporting of rescheduling / restructuring of short term facilities in eCIB database, shall achieve compliance within twelve months of issuance of these regulations. Such banks/DFIs are advised to present time-bound compliance plan to their Board of Directors in next three months.

These amendments in regulations will be applicable on rescheduling/restructuring transactions executed now onwards. Banks/DFIs are advised to follow these regulations in letter and spirit. Any deviation or non-compliance of the same shall attract punitive action under the relevant provisions of the Banking Companies Ordinance, 1962.

All other instructions on the matter will, however, remain unchanged.