In order to promote standardization, consistency and in line with international best practices, the State Bank of Pakistan (SBP) has incorporated amendment to definitions and regulation R-8 of Prudential Regulations in respect of rescheduling/restructuring and income recognition of advances. As per amendments to definitions, grace period means will be "the 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".
Restructuring means "such concessions to the borrower, due to borrowers' financial difficulty, which the bank/DFI would not otherwise consider". Restructuring normally involves modification in the terms & conditions of the financing/securities and generally includes, amongst others, alteration of repayment period, repayable amount, installment amount, mark-up rates (due to reasons other than competitive pricing) etc". 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".
According to SBP, 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. In addition, a Para "For syndicate loans, only the 'Agent Bank (security trustee)' is to report the rescheduling/restructuring, on behalf of syndicate members, to eCIB database" has been in the Para 3(b) of regulation R-8 of Prudential Regulations for Corporate/Commercial Banking.
Following new paragraph is also 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".
However, according Financing facilities including secured against Government guarantees, fully secured by liquid securities, allowed to Public Sector Entities, allowed for Infrastructure financing and of principal amount of less than Rs 300 million, will exempt from the this requirement
Similarly, in short term finance facilities administered as tranches under a single master limit, (i) threshold limit of Rs 300 million, and, (ii) multiple rescheduling/restructuring counter will be reckoned on tranche basis. According to SBP, 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 12 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. While, all other instructions on the matter will, however, remain unchanged.
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