The State Bank of Pakistan (SBP) has revised investment limits for banks and development finance institutions (DFIs), setting new caps on investments in company shares, startups, mutual funds, real estate investment trusts (REITs) and private equity funds.

The changes were announced through BPRD Circular Letter No. 22, issued on October 23, which amends Regulation R-6 of the Prudential Regulations for Corporate and Commercial Banking.

New Investment Limits

Under the revised rules, a bank’s investment in shares of any single company cannot exceed the lower of 5 percent of its Tier-I capital or 10 percent of the company’s paid-up shares.

For investments in a single startup, including a financial technology (fintech) company, the limit is the lower of 5 percent of the bank’s Tier-I capital or Rs. 500 million.

Banks investing in a single mutual fund, REIT or private equity fund must also stay within the lower of two limits: 5 percent of their Tier-I capital or 20 percent of the fund’s total units.

The SBP said Tier-I capital will be calculated using the bank’s latest half-yearly reviewed or annual audited financial statements.

Banks Must Have an Approved Investment Policy

The central bank has directed banks and DFIs to establish a formally approved policy for equity investments. The policy must include an internal assessment process to ensure investment decisions are evaluated objectively.

Banks must consider their financial position, existing investment portfolios, risk appetite, expected returns, available expertise and business strategy. The policy must also include an exit plan for investments.

Strategic investments, along with investments in mutual funds and private equity funds, will count towards the prescribed limits. However, units of the National Investment Trust (NIT) are exempt until the institution is privatized.

The SBP said all other existing instructions on the subject will remain unchanged.