Please refer to BSD Circular No. 06 dated October 28, 2005 on the above subject.

2. In order to further strengthen the solvency of individual bank/DFI, it has been decided to raise the Minimum Capital Requirements (MCR) as well as Capital Adequacy Ratio (CAR) calculated as per Basel II, as under:

i) The minimum Paid up Capital requirements for all locally incorporated banks has been raised to Rs. 23 billion (net of losses) to be achieved in a phased manner as under:

Minimum Paid up Capital (Net of losses)	Dead line by which to be increased
Rs 5 billion	31-12-2008
Rs 6 billion	31-12-2009
Rs 10 billion	31-12-2010
Rs 15 billion	31-12-2011
Rs 19 billion	31-12-2012
Rs 23 billion	31-12-2013

ii) Branches of foreign banks operating in Pakistan (FBs) are also required to increase their assigned capital to Rs. 23 billion (net of losses) within the above prescribed timelines. However, those FBs, whose Head Offices hold Paid up capital (free of losses) of at least equivalent to US$ 300 million and have a CAR of at least 8% or minimum prescribed by their home regulator, whichever is higher, will be allowed with the prior approval of the State Bank to maintain the following MCR:
a. FBs, operating with upto 5 branches are required to raise their assigned capital to Rs. 3 billion latest by 31st December 2010.
b. FBs operating/desirous of operating with 6 to 20 branches are required to raise their assigned capital to Rs. 6 billion by 31st December 2010.

iii) DFIs will raise their paid up capital (free of losses) to Rs. 5 billion by December 2008 and Rs. 6 billion by December 2009 as presently required.

3. In addition to the above requirements, all banks are also required to meet specific condition(s), if any, regarding capital requirement imposed on them under the Banking license issued by the State Bank of Pakistan.

4. All new banks including branches of foreign banks, licensed after the date of this Circular will be required to meet the paid up/assigned capital requirement of Rs. 23 billion before commencement of their operations.

5. The required minimum CAR, on consolidated as well as on standalone basis has been increased for banks/DFIs to 10%. Those banks/DFIs whose CAR is at present less than 10% are advised to meet the shortfall latest by 31st December, 2008. Furthermore, all banks/DFIs are required to maintain variable CAR as under:

i) The variable CAR will now be based on CAMELS-S Rating assigned by the State Bank to each bank and DFI. The required variable CAR to be maintained by each bank/DFI will be determined as follows:

CAMELS-S	Required CAR effective from
	31.12.2008	31.12.2009
1 & 2	10%	10%
3	10%	12%
4	11%	14%
5	12%	15%

ii) Banks/DFIs which, in the opinion of the State Bank, have high risk profile may be asked to further increase the required CAR by One (1) percentage point.
Those banks/DFIs whose CAR fall short from the required ratio (determined on the basis of CAMELS-S) shall meet the shortfall within 6 months from the assignment of the latest rating.

6. The required MCR and CAR can be achieved by the banks/DFIs either by fresh capital injection or retention of profits. The stock dividend declared after meeting all the legal and regulatory requirements, and duly disclosed in the annual Audited Accounts will be counted towards the required paid up capital of the bank/DFI pending completion of the formalities for issuance of bonus shares.

7. Any bank/DFI that fails to meet the minimum paid up capital requirement or CAR within the stipulated period shall render itself liable to the following actions:

i) Imposition of such restrictions on its business including restrictions on acceptance of deposits and lending as may be deemed fit by the State Bank.

ii) Descheduling of the bank, thereby converting it into a non-scheduled bank.

iii) Cancellation of the banking license if the State Bank believes that the bank is not in a position to meet the minimum paid up capital requirement or CAR.

8. This circular supersedes the instructions issued vide BSD Circular No. 06 dated October 28, 2005.

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