This was revealed in a circular issued by the SBP. The guidelines cover areas such as credit appraisal, collateral arrangements, security packages, project insurance and regulatory compliance.
The salient features of the revised guidelines include the requirement for establishing a mechanism for generating feasibility reports and assessing risk mitigation means in the development, construction, start-up and operation stages of the project.
Banks and DFIs are also required to establish a proper process for the continuous monitoring of project implementation to ensure proper utilisation of the credit to the financial institutions. Relevant bank accounts will be subject to audit by the SBP.
Banks and DFIs are also encouraged to accept Concession Agreement/Licence issued by a government agency as collateral. The institutions are also instructed to ensure adequate insurance coverage against all potential risks applicable to the project. At no point shall the bank’s exposure to the risk exceed the bank’s equity, the circular said, adding that the exposure availed by any borrower shall also not exceed 10 times the borrower’s equity.
Published in The Express Tribune, September 7th, 2010.
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