Agri, corporate and SMEs: SBP amends three Prudential Regulations

The State Bank of Pakistan (SBP) has amended Prudential Regulations for agriculture financing, corporate/commercial banking and SMEs financing for electronic warehouse receipt under the Collateral Management Companies Regulations, 2019 issued by the Securities Exchange Commission of Pakistan (SECP).

The fresh amendments to Prudential Regulations will be applicable with immediate effect. The SBP has advised banks/DFIs to ensure meticulous compliance of the revised instructions in letter and spirit. Any deviation or non-compliance of Prudential Regulations will attract punitive action under the relevant provisions of Banking Companies Ordinance, 1962, the central bank warned.

According to AC&MFD Circular Letter No. 03 of 2019, in order to provide enabling regulatory framework for channelising financing to develop an efficient and standardized infrastructure for the storage of commodities, inter alia, to reduce spoilage of produce, amendments in the Part-A: Definitions 20 (ii) and Regulation R-1 of Prudential Regulations for Agriculture Financing have been incorporated regarding Electronic Warehouse Receipt under Collateral Management Companies Regulations, 2019 issued by the SECP.

As per amendment, Part A-Definitions: 20 (ii) should be read as "Other Form of Security means hypothecation of movable agricultural machinery, pledge/hypothecation of agriculture produce on the farm or in godown, and charge on livestock on the farm. In case of pledge/hypothecation of agriculture produce lying in godown, the title/ownership of the produce in the name of the borrower shall be determined based on appropriate documents, for example Electronic Warehouse Receipt (EWR) as defined under Collateral Management Companies Regulations 2019 issued by the SECP."

Amended Regulation R-1: Comprehensive Agriculture Financing Policy viii) said that: The policy shall cover different aspects related to financing against pledge of stock under EWR including list of eligible commodities, quality of collateral, valuation, price volatility, margin, limits, tenor of loans, diversification, insurance, substitution of collateral and managing collateral in the event of counter party default, etc.

Similarly, According to BPRD Circular Letter No. 21 of 2019, SBP has also announced following amendment in the Part-A: Definitions of Prudential Regulations for Corporate/Commercial regarding Electronic Warehouse Receipt under Collateral Management Companies Regulations, 2019 issued by the SECP.

Part-A: Definitions: Secured means exposure backed by liquid assets, pledge stock - including pledging against Electronic Warehouse Receipt (EWR) as defined in Collateral Management Companies Regulations, 2019 issued by the SECP, mortgage of land, plant, building, machinery or any other fixed assets, hypothecation of stock (inventory), trust receipt, assignment of receivable, lease rentals, and contact receivables but does not include hypothecation of household goods. The unsecured exposure will be considered as clean.

In addition, SBP through circular IH&SMEFD Circular Letter No. 7 of 2019, following amendments in the Definition and Regulation SME R-1 of Prudential Regulations for SME Financing have incorporated regarding Electronic Warehouse Receipt.

Definition of Important Terms (Annexure-V):

Readily Realizable Assets means and include liquid assets and stocks pledged to the banks & DFIs in possession or stock pledged under Electronic Warehouse Receipt (EWR) as defined in Collateral Management Companies Regulations 2019 issued by the SECP, with 'perfected lien' duly supported with complete documentation.

SME R-1: SME Specific Credit Policy: (vi) The policy shall cover different aspects related to financing against pledge of stock under EWR including list of eligible commodities, quality of collateral, valuation, price volatility, margin, limits, tenor of loans, diversification, insurance, substitution of collateral and managing collateral in the event of counter party default, etc.