SBP exempts Microfinance Banks' time deposits from Cash Reserve Requirement

KARACHI (May 14, 2010) – State Bank of Pakistan (SBP) has decided to exempt time deposits of one-year tenor and above, held by microfinance banks (MFBs) for maintenance of Cash Reserve Requirement (CRR), and time liabilities of one year tenor and above for maintenance of Statutory Liquidity Requirement (SLR).

In terms of powers conferred upon SBP, under section 18 of Microfinance Institutions Ordinance – 2001, the bank has made amendments in PR No 6 & 27 to streamline calculations and reporting of CRR and SLR of MFBs. According to a circular (MFD Circular No 2), issued on Thursday, Prudential Regulation No 6 for microfinance institutions regarding maintenance of Cash Reserve & Liquidity Reserve has been amended, wherein MFBs shall now maintain CRR equivalent to not less than 5 percent of its deposits (including demand deposits, and time deposits with tenor of less than one year).

Similarly, time deposits with tenor of one year and above will not require any cash reserve and time liabilities with tenor of one year and above of MFBs will also not require any SLR. The circular said, MFBs shall also maintain SLR equivalent to at least 10 percent of its total demand liabilities, and time liabilities with tenor of less than one year.

SBP has amended these regulations with a view to streamline calculations and reporting of CRR and SLR by MFBs. Furthermore, this exemption will encourage mobilisation of long-term deposits by MFBs, and greater utilisation of their financing resources towards onward lending.

According to the circular, Prudential Regulation No 27 regarding Submission of Periodical Returns has also been amended under which MFBs shall henceforth submit their CRR and SLR statements along with bi-weekly (fortnightly) statement of affairs to Off-Site Supervision & Enforcement Department, State Bank of Pakistan. These instructions will be effective from bi-weekly (fortnightly) due on 28th May 2010 and onwards, it added.

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