The State Bank of Pakistan (SBP) has revised Regulation R-6 of the Prudential Regulations for Corporate and Commercial Banking, updating the limits governing equity investments made by banks and development finance institutions (DFIs). The amendments, announced on October 23, 2026, set exposure caps for investments in individual companies, startups, mutual funds, real estate investment trusts (REITs) and private equity funds. The revised requirements also direct financial institutions to maintain approved policies for evaluating investment decisions, including assessments of financial capacity, risk appetite and exit strategies.
In a circular addressed to the presidents and chief executive officers of all banks and DFIs, the central bank amended provisions related to the acquisition of shares and mutual fund units. Under the revised rules, a bank’s or DFI’s total investment in the shares of a single company must not exceed the lower of 5% of the institution’s Tier-I capital or 10% of the investee company’s paid-up shares. The Tier-I capital figure must be taken from the institution’s latest reviewed half-yearly or audited annual financial statements.
The dual-limit approach means that institutions must comply with both a capital-based ceiling and a limit linked to the ownership structure of the company receiving the investment. The applicable maximum will be whichever of the two calculations produces the lower amount. This establishes a common framework for assessing individual company exposures while taking account of the investing institution’s capital base and the proportion of shares it would hold in another business.
The SBP has also introduced a specific investment ceiling for individual startups, including financial technology (fintech) startups. Under the revised regulation, a bank or DFI may invest up to the lower of 5% of its Tier-I capital or Rs500 million in an individual startup. The limit applies to each startup rather than establishing a single cap for all startup investments combined. By defining a separate threshold for this category, the regulation addresses equity investments in early-stage businesses while keeping exposure linked to the financial institution’s capital position and a fixed rupee amount.
For investments in mutual funds, REITs and private equity funds, the central bank has set the permitted exposure at the lower of 5% of the bank’s or DFI’s Tier-I capital or 20% of the units of the respective fund. As a result, institutions must consider both the size of their own capital base and the share of a fund’s total units represented by their investment. The requirement covers different investment structures, including funds linked to property assets and private equity holdings.
Alongside the revised numerical limits, the SBP has directed banks and DFIs to maintain an approved policy that includes an internal evaluation process for equity investment decisions. The assessment process must examine the institution’s financial position, its aggregate investment portfolio, risk appetite, expected returns, relevant expertise, business strategy and exit strategy. These factors are intended to support a more structured assessment of potential investments before institutions commit capital.
The inclusion of an exit strategy in the required assessment means that institutions must consider how an investment could be unwound, rather than focusing exclusively on its initial purchase or expected return. Financial position and aggregate portfolio exposure are also relevant to determining whether a proposed transaction fits within an institution’s overall risk capacity. The regulation therefore combines specific investment caps with broader internal governance requirements.
The central bank has further clarified how certain holdings will be counted towards the applicable aggregate investment limits. Investments arising from strategic holdings, along with investments in units of all types of mutual funds and private equity funds, will count towards the relevant limits. This provision requires institutions to consider these holdings when assessing their total exposure under the framework rather than treating them as separate from the applicable calculations.
An exception has been retained for units of the National Investment Trust (NIT), which will remain excluded from the relevant limits until its privatisation. The SBP has also stated that all other existing instructions on the subject will remain unchanged, meaning the amendments revise the specified provisions without replacing the entire regulatory framework governing equity investments by banks and DFIs.
The revised Regulation R-6 forms part of the SBP’s prudential framework for managing investment activities across the banking and development finance sectors. By defining caps for individual companies, startups and investment funds, while requiring documented internal evaluations, the amendments establish clearer parameters for how financial institutions assess and manage equity exposures. Banks and DFIs will need to consider the updated thresholds alongside their capital position, existing holdings, investment objectives and internal approval processes when making relevant investment decisions.
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