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SBP issues new Master Circular for banks, DFIs cash reserve requirement

KARACHI (May 10 2003) : In order to facilitate banks to ensure meticulous compliance in respect of Cash Reserve Requirement (CRR), the State Bank on Friday has consolidated the existing instructions on the subject in the form of a Master Circular.

In terms of Section 36(1) of State Bank of Pakistan Act, 1956, every scheduled bank is required to maintain with SBP a balance the amount of which shall not at the close of business on any day be less than such percentage of Time & Demand Liabilities in Pakistan as determined by State Bank from time to time.

Accordingly, in exercise of the powers vested under the aforesaid provision of law the State Bank has been issuing instructions from time to time regarding the percentage of Cash Reserve to be maintained and the manner in which the required cash reserve balance will be calculated by the banks.

Currently, banks are required to maintain with SBP a weekly average balance of 5 percent of their total Time & Demand Liabilities, subject to daily minimum of 4 percent, with effect from December 16, 2000.

In order to comply with the prescribed CRR, the following guidelines shall be observed:

While calculating the average weekly balance of 5 percent and the daily minimum balance of 4 percent, the demand and time liabilities at the close of business on every Saturday (and if Saturday is a holiday, on the previous working day) shall continue to be taken into account.

For the purpose of calculating the average weekly balance, the week shall invariably consist of seven (7) days from Saturday to Friday irrespective of the holiday(s).

In case any of the days from Saturday to Friday happens to be a holiday the balance maintained at the close of preceding working day shall continue to be taken into account for the purpose of calculating the average weekly balance.

Further, total demand and time liabilities will be strictly applied from the Saturday to next Friday.

While calculating the CRR, the balances maintained as per books of State Bank of Pakistan shall be taken into account.

For levy of penalty on default in maintaining average weekly balance of 5 percent, the minimum balance required to be maintained during a week shall be determined by multiplying 5 percent of the time and demand liabilities with total week days ie 7 and compared with the aggregate of the balances maintained during the week with SBP.

If the aggregate balance maintained during a week is below the minimum balance required to be maintained, the bank shall render itself liable to pay the penalty.

The penalty shall be levied on the shortfall between the aggregate balance maintained during a week and the aggregate minimum balance required to be maintained over the seven days.

If any bank maintains the average weekly balance of 5 percent but fails to maintain a daily minimum balance of 4 percent of the total time and demand liabilities at the close of business on any day, such bank shall also render itself liable to pay the penalty.

The rate of penalty for default in maintenance of CRR is (a) Rs 69 per 100,000 or part thereof per day on the amount by which the balance with SBP falls short of the required balance; (b) if the shortfall continues in the subsequent week or thereafter, the penalty shall be increased to Rs 86 per 100,000 or part thereof per day.

This will supersede all previous instructions on the subject.

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