SBP revises borrowers' grouping criteria

The State Bank of Pakistan on Saturday decided that in Credit Information Bureau (CIB) report, grouping of borrowers shall now be done on the basis of revised criteria.
A SBP circular to all banks, DFIs, NBFCs said,
a) The names of 'Group' companies shall be reported by financial institutions according to definition of 'Group' as contained in Definition No 14 of Prudential Regulations (PRs) for Corporate/Commercial Banking. Thus, onus for correct formation of group as per definition given in Prudential Regulations will be on banks, DFIs, NBFCs.
b) Banks, DFIs, NBFCs will ensure that while determining group relationships in terms of criteria prescribed in PRs, they should not consider foreign national directors, directors of companies under liquidation, and nominee directors of following entities/agencies: Foreign Controlled Entities; Banks/DFIs; Public Sector Enterprises; Federal/Provincial Government; Private Sector Enterprises' nominee directors on Board of Public Sector Enterprises.
c) The definition of Group as contained in PRs shall, however, be not applicable in context of Government owned, controlled entities notwithstanding the fact these are listed or unlisted.
2) Since reflection of negative information in credit report of any party may adversely impact its relationships with its lending institutions, therefore, banks, DFIs, NBFCs are advised to be very careful while reporting names of group entities in CIB data. In case any party disputes group relationship, reporting bank, DFI, NBFC should be able to defend its position with documentary evidence.
3) The above changes in grouping criteria of companies have necessitated collection of certain additional data from financial institutions. Therefore, existing formats of CIB data collection (viz. CIB-I, II and III) circulated vide BSD Circular No.4 dated 25th February, 2003 have been revised.
Banks, DFIs, NBFCs are advised to start collecting additional information called for in above formats from their clients and form groups as per definition of 'Group' given in Prudential Regulations.
SBP will start collecting monthly CIB data on revised formats after revising its data capturing software application, for which banks, DFIs, NBFCs will be advised in due course.
SBP has revised criteria of grouping of borrowers for reporting in CIB reports, in order to bring uniformity as also to spare borrowers from inconvenience being faced by them on account of old definition of 'Group'.
The revised criteria will group together only those companies/firms which have direct affiliation-significant influence over affairs of related companies, firms. Banks, DFIs, NBFCs will now report names of 'Group' companies to SBP according to definition of 'Group' contained in Prudential Regulations (PRs) for Corporate, Commercial Banking.
SBP also advised banks, DFIs, NBFCs to be very careful while reporting names of group entities in CIB data as onus for correct formation of group, as per definition given in Prudential Regulations, will be on them.
The existing criteria, framed in 1994, at times resulted in grouping of some companies, firms, individuals with defaulters due to common directorship, ownership notwithstanding the fact that directors with 100 shares or owners with 5 percent share holding are not always in a position to control affairs of institution.