KARACHI: The State Bank of Pakistan (SBP) has revised the rules governing equity investments by banks and development finance institutions (DFIs), setting updated limits for investments in individual companies, startups, mutual funds, real estate investment trusts and private equity funds.
The changes were issued on October 23 through BPRD Circular Letter No. 22 of 2026, amending Regulation R-6 of the Prudential Regulations for Corporate and Commercial Banking.
The circular sets investment ceilings linked to a financial institution’s Tier-I capital and, depending on the investment, the size or units of the organisation receiving the funds.
Limits for individual companies
Under the revised rules, a bank or DFI’s aggregate investment in the shares of a single company must remain within the lower of two thresholds:
- Five percent of the institution’s Tier-I capital, based on its preceding half-yearly reviewed or annual audited financial statements.
- Ten percent of the investee company’s paid-up shares.
Tier-I capital is a key measure of a bank’s core financial strength and is used in prudential regulation to assess its ability to absorb losses.
The lower-limit requirement is intended to restrict excessive exposure to an individual company.
Separate rules for startups and investment funds
For investments in a single startup, including a fintech startup, the permitted amount is capped at the lower of five percent of the bank or DFI’s Tier-I capital or Rs500 million.
Investments in units of a single mutual fund, real estate investment trust (REIT) or private equity fund are subject to the lower of five percent of Tier-I capital or 20 percent of that fund’s units.
The rules therefore distinguish between direct shareholdings in established companies, startup investments and holdings in pooled investment vehicles.
Internal assessment requirements
The SBP has also directed banks and DFIs to maintain an approved policy for evaluating equity investment decisions.
The assessment must consider the institution’s financial position, existing investment portfolio, risk appetite, expected returns, expertise and business strategy, including its proposed exit strategy.
The circular further clarifies that strategic investments and investments in mutual funds and private equity funds are to be counted towards applicable aggregate investment limits, with an exception for National Investment Trust units until privatisation.
All other relevant instructions remain unchanged.
The revised framework provides more specific regulatory boundaries for equity investments while requiring banks and DFIs to assess their investment risks internally.