State Bank of Pakistan

Please refer to BSD Circular No. 7 dated November 1, 2005 on the above subject.

2) The classification and provisioning requirements have been revisited, on the representation of Pakistan Banks’ Association, and it has been decided to allow the banks/DFIs to meet the provisioning requirement of 25% against Substandard category in a phased manner i.e. 10% from 31st December 2005 and 25% from 31st December 2006, as also the benefit of Forced Sale Value (FSV) against Housing Loans under Prudential Regulation R-23 of the Prudential Regulations for Consumer Financing. Accordingly, the following specific amendments in the classification and provisioning criteria have been made:

i) The existing Annexure-IV of Regulation R-8 of the Prudential Regulations for Corporate/Commercial Banking, Annexure-III of Regulation R-11 of the Prudential Regulations for Small and Medium Enterprises Financing, Regulation R-14 (Auto Loans), Regulation R-23 (Housing Finance) and Regulation R-28 (Personal Loans) of the Prudential Regulations for Consumer Financing have been replaced with the enclosed Attachments A, B, C, D and E respectively.

ii) In terms of Regulation R-4 of Prudential Regulations for Consumer Financing, banks and DFIs are required to maintain a general reserve at the specified rates against their consumer portfolio. It is clarified that on classification of a performing/regular consumer loan into a non-performing/classified loan, the underlying general reserve created against such loan can be used against the specific provision and the banks/DFIs will be required to create only the balance provision to meet the specific provisioning requirement against such classified loan.

3) These revised criteria as per Attachments to this circular will be effective from 31st December 2005. All other instructions on the subject shall, however, remain unchanged.

Please acknowledge receipt.

Encl:
Attachments ‘A’, ‘B’, ‘C’, ‘D’ & ‘E’