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SBP Revises Minimum Paid-up Capital Requirement (MCR) for Banks to Rs.10 Billion

KARACHI (October 14, 2010) – The State Bank of Pakistan (SBP) has enhanced the minimum paid up capital requirement (MCR) (free of losses) by 400 percent, to Rs 10 billion, with immediate effect, with a view to tightening criteria for setting up a commercial bank.

The central bank has made some changes in the existing guidelines and criteria for setting up a commercial bank a updating Para-4 (iii) of existing licensing criteria for commercial banks and replacing with revised capital requirements.

As per the revision of capital requirements for new entrants, banks in different modes of operations are required a minimum paid up capital of Rs 10 billion, instead of Rs 2 billion previously, depicting a surge of Rs 8 billion or 400 percent. The SBP has also increased MCR for foreign banks, as foreign banks desirous to conduct banking business in branch mode should have a minimum paid up capital (free of losses) of Rs 3 billion.

In addition, in case a foreign bank intends to commence business with more than 5 branches, or expands its operations in future, the MCR would be Rs 6 billion or any other amount as prescribed by SBP from time to time. In case of branch network of more than 50 branched MCR would be Rs 10 billion, or any other amount as prescribed by SBP from time to time.

Sources in the banking industry said that these changes in capital requirement are a part of banking industry reforms to further streamline the banking sector with selected institutions and better services. Previous guidelines said: “To be able to commence business of banking, the bank should have a minimum paid up capital (free of losses) of Rs 2,000 million or any other amount as prescribed by SBP from time to time.”

The revised Para 4 (iii) of guidelines and criteria for setting up of a commercial bank is as follows: To be able to commence business of banking, the locally incorporated banks as well as subsidiary of a foreign bank should have a minimum paid up capital (free of losses) of Rs 10 billion or any other amount as prescribed by SBP from time to time.

Foreign banks desirous to conduct banking business in branch mode should have a minimum paid up capital (free of losses) of Rs 3 billion or any other amount as prescribed by SBP from time to time, subject to following conditions;

a) The foreign bank holds paid up capital (free of losses) of at least equivalent to US $300 million and have a CAR of at least 8 percent or minimum prescribed by their home regulator, whichever is higher.

b) The bank will operate with a branch network of 5 branches; in case the bank intends to commence business with more than 5 branches or expands its operations in future, the MCR would be as follows; MCR Branch Network : From 6 to 50 branches Rs 6 billion or any other amount as prescribed by SBP from time to time.

Branch Networks: More than 50 branches: Rs 10 billion or any other amount as prescribed by SBP from time to time. The State Bank has already tightened the minimum paid up capital (free of losses) requirements for banks and already working banks are required to raise their minimum paid up capital (free of losses) to Rs 10 billion by December 31, 2013. Banks are also required to raise their minimum paid-up capital (free of losses) to Rs 7 billion by December 31, 2010, Rs 8 billion by December 31, 2011, Rs 9 billion by December 31, 2012 and Rs 10 billion by December 31, 2013.

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