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Local dollar collection and settlement system introduced

KARACHI (February 20 2004): The State Bank of Pakistan (SBP) on Thursday introduced “Local US Dollar Instruments Collection and Settlement System” which will not only gear up the process, but will also be cost effective.

The new system will be effective from March 11, 2004, a State Bank circular issued here said.

Presently, the clearing process has to be routed through New York, which takes a long time in settlement, and the cost of the process is also quite high for the account holders.

“The key objectives of this new system are quick settlement locally, cost effectiveness and facilitation of the market,” the SBP circular said.

The new system was introduced as part of liberalisation of the foreign currency regime in the country and to facilitate operations for maintaining Foreign Currency Accounts under FE-25, it added.

All financial instruments (cheques, drafts, etc,) denominated in US dollar drawn on bank branches (in cities as appears in the coverage list below) in Pakistan will be acceptable for this settlement system.

Each bank will designate a branch/regional/head office in Karachi for presenting outward and receiving inward instruments for collection and settlement through National Institutional Facilitation Technologies (Pvt) Ltd (NIFT).

NIFT will deal with only one designated office of each bank in Karachi for settlement of Karachi and upcountry branches.

Each bank may also designate one branch in each city (ie from the coverage list) with whom NIFT and the designated branch of that bank in Karachi, if required, would liaise for issues regarding collection and settlement relating to other branches in that city.

The bank branches in Karachi, Lahore, Islamabad, Rawalpindi, Faisalabad, Multan, Sialkot, Peshawar, Quetta, Mirpur and Hyderabad will participate in the Local US Dollar Instruments Collection and Settlement System.

Collection from all other cities will be arranged/managed by each bank, by making internal arrangements, through any one of the above cities.

Addition of more cities within the ambit of the above settlement system will be considered in due course depending on the requirements and the facilities for collection of instruments through courier services.

Initially, there will be two collection and settlement days per week, ie Monday and Thursday.

If a collection/settlement day happens to be a bank holiday, then it will be skipped till the next collection/settlement day.

It will be mandatory for the banks operating in Pakistan, whose head offices or branch offices are located in Karachi:

— to be a member of this system,

— to open US$ settlement account with a minimum balance of $ 10,000 for settlement with SBP BSC (Bank) Karachi and thereafter to maintain sufficient balance to cater to the requirements keeping in view their business volume. The account will be remunerated on the same interest rate as for SCRR for FE-25.

— to settle payment of US$ instruments drawn on them through this system or to return unpaid instruments on the settlement date.

In case the paying bank does not return the original instrument on the settlement date to the presenting bank, it will be assumed that the instrument has been accepted for payment and would be settled through this system accordingly.

The collection/settlement will be centralised in Karachi. NIFT will interface with one designated branch of each bank in Karachi only.

The banks will route all inward/outward instruments from their branches in Pakistan through their designated branch in Karachi.

NIFT will collect/deliver all instruments for inward/outward settlement from the designated branches of banks in Karachi and process the collection/settlement and deliver a consolidated statement to the respective designated branch of the bank.

Each designated branch in Karachi will forward the instruments received in inward collection to the payee branch of their bank directly for 'Acceptance' or 'Return unpaid'.

The payee branch will settle or return the original instrument, if any, to the designated branch in Karachi. NIFT will collect all returned instruments from the designated branches in Karachi, process them along with inward collection and then route them to the related designated presenting bank branch in Karachi.

The settlement proceeds of the instruments would be communicated to the concerned branch immediately by electronic or any other means on the same day for crediting to the concerned depositor's account.

The collecting bank will affix the stamp of the date on which outward instruments would be sent to NIFT for collection.

The net settlement will take place by debiting or crediting the respective banks' US dollar clearing accounts on the settlement date.

NIFT will provide a statement of collection/settlement statistics on monthly basis to ascertain the expenses payable by the lodging bank to the paying bank at the rate of Rs 100 per instrument (for cheques drawn on cities other than Karachi) irrespective of whether the instruments are paid or returned unpaid.

All other reports and information will be produced and provided on the existing pattern as for rupee clearing.

NIFT will provide stationery and usual collection/settlement preparation material to the branches as is being done for PKR clearing systems.

If for some unavoidable reasons the relevant bank is unable to provide a returned cheque on the specific collection/settlement date, the designated bank office in Karachi will provide to the concerned bank along with inward clearing instruments, with a copy to NIFT, a document on prescribed format (agreed between the banks and NIFT) giving details of the instrument, undertaking that the instrument will be provided to the lodging bank directly on availability, but not later than the subsequent collection/settlement date, and that the instrument will be considered as returned unpaid.

This process may function in such a manner that the designated bank will furnish the prescribed document in duplicate to NIFT in place of the returned document and NIFT will send the first copy to the lodging bank along with other returns, if any, as a return instrument.

At any point in time when the net debit (inward and outward) cannot be paid out of a bank's US dollar clearing account (due to insufficient balance) held with the SBP BSC (Bank), Karachi, the State Bank reserves the right to adopt a suitable alternative. This will primarily take the shape of payment through an appropriate overnight SWAP from the Pak rupees clearing account balance of the bank with the SBP to the extent of such shortfall in US dollar account.

SWAP limit for every bank is being advised to each bank individually.

NIFT will charge the presenting bank Rs 100 per instrument for its services and Rs 100 for processing a return instrument.

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