Circulars/Notifications - Banking Supervision Department  
 BSD Circular No.20
August 04, 2000  

All Banks / NBFls,

Dear Sirs,

DIRECTIVE UNDER SECTION 41 OF BCO - REPO TRANSACTIONS

It has been decided to substitute the instructions issued vide BPRD Circular No. 40 and BPRD Circular letter No. 58 dated 17th November 1999 and 4th December 1999 respectively on the above subject as under:

With a view to bring about operational improvements in the money market transactions, to strengthen the repurchase market and to ensure transparency the banks/NBFIs were required to enter into Master Repo agreement with the counter party by 15th January 2000.

2. In respect of REPO transactions, banks/NBFIs are required to ensure the following:

i) Any transaction involving government securities or other approved securities, either for repurchase or as collateral, will be accompanied by the same day movement of securities through SGLA or physical delivery of security, as the case may be, along with full movement of funds.

ii) To ensure proper monitoring of cash flow, and interest rate risk,all REPO transactions will continue to be for fixed maturity.

3. Banks/NBFIs will also continue to revalue their security holdings (both balance sheet as well as off-balance sheet items) on weekly basis as advised earlier and properly reflected in their books of accounts. The rate used for valuation of government securities will be PKRV (Reuters Page) whereas in case of quoted securities closing rates of Karachi Stock Exchange will be used. However in case of unquoted securities where active market does not exist, the securities will be shown at cost. Further any surplus/deficit arising on revaluation of securities will not be taken to profit and loss account except when actually realized and instead will be kept in a separate account called “Surplus/Deficit on Revaluation of Securities” which will be shown below equity and its breakup in (i) Govt. Securities (ii) Quoted Shares (iii) Other Securities may be given in the notes to the financial statements. While reporting in the Weekly Statement of Position (WSP) the “Surplus/Deficit on Revaluation of Securities” may be clubbed with the equity and the break-up of same may be shown by way of footnote to WSP as under:

Surplus/Deficit on Revaluation of : Code No.

(i) Government Securities 58.03

(ii) Quoted Shares 58.04

(iii) Other Securities 58.05

4. Moreover, all securities related transactions having a maturity / settlement date other than ready e.g. outright forward sale/purchase, forward leg(s) of a Repo agreement (both ready against forward and forward against forward) should also continue to be reflected in bank’s/NBFI’s account on the same date when the transaction was entered into.

5. Any bank/NBFI found violating the above instructions shall render itself liable to penalties under the provisions of Banking Companies Ordinance, 1962 and may be prohibited to undertake REPO transactions for such period as the State Bank may determine on case to case basis.

Please acknowledge receipt.

Yours faithfully,
Sd/-(KAZI ABDUL MUKTADIR)
Director

       
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