Please refer to Regulation R-6 under Prudential Regulations for Corporate/ Commercial Banking on the captioned subject..

2. As you are aware the banks are required to cap their investment in shares at 20% of their equity under Prudential Regulation R-6. However, Strategic Investment is excluded from the subject limit, to enable banks to take exposure in these investments within overall permissible limits per company. The Strategic Investment was defined in the concerned Regulation to be "an investment which a bank/DFI makes with the intention to hold it for a longer term of duration and should be marked as such at the time of investment and can only be disposed-off with the prior approval of State Bank of Pakistan."

3. In order to give a more objective criteria for marking an investment as strategic, as well as replacing the condition for banks to obtain prior approval from the State Bank of Pakistan, the following criteria is prescribed for strategic investment:

(a) The strategic investment will continue to be excluded from the 20% aggregate exposure limit in stocks.

(b) The strategic investment, marked as such at the time of investment, shall be retained by the banks/DFIs for at least 5 years.

(c) If there are a series of purchases of stocks of a company, the minimum retention period of 5 years shall be counted from the date of the last purchase.

(d) The banks/DFIs’ investment in a company can be segregated to be categorized as strategic and non-strategic.

(e) The banks' decision to make strategic investment carries great significance, keeping in view the implications of such investment in terms of liquidity management and long term outlook of the investee companies; thus, such decisions have to be undertaken with proper diligence, taking into account all relevant factors. Accordingly, it is understood that a committee, clearly designated/empowered by the bank, should take the decision for strategic investment. All Record of transactions/decisions, taken by the committee, regarding strategic investment should be properly maintained and kept in a separate file, for provision of the same to the SBP Inspection Team during their visit to the bank.

4. The banks/DFIs may review their existing strategic investment portfolio in the light of the above criteria, and investments, not falling in strategic portfolio, may be shifted to the Trading Portfolio. However, if any such shifting results in an excess over the 20% limit, prescribed under Regulation R-6, the excess should be regularized and brought back within the 20% limit within 3 months.

5. The position of investment in strategic portfolio will be reported by the banks/DFls to the Banking Policy Department, within the 15 days from the date of issue of this Circular Letter, and within 2 working days from the date of investment in strategic portfolio.

6. All other instructions on the subject will remain unchanged.

7. Please acknowledge receipt.