With a view to protect the interest of foreign currency depositors under FE 25 and also to ensure a prudent utilization of these foreign currency deposits by banks and  NBFIs concerned, the following  Prudential guidelines are issued with immediate effect:- 

a.            Banks/NBFIs shall not invest FE 25 deposits in foreign currency/local currency denominated junk bonds, shares, hedge funds or other such high risk / high return instruments. Neither, they shall invest / place such deposits in fund management schemes of other banks / NBFIs, whether in Pakistan or abroad.

b.   Banks / NBFIs will be free to decide the rate of return on such deposits, provided the maximum rate of return offered on such deposits does not exceed LIBOR applicable on the date of determination of such return / profit. Accordingly, the previous instructions issued under para B(2) of FE Circular No. 25 dated June 20, 1998 stand modified to this extent.

c.            Banks/NBFIs shall be required to maintain the prescribed ratio of Cash Reserve against FE 25 deposits in US Dollars.

d.   Per party lending/ placements against FE 25 deposits, whether in Pakistan or abroad, shall not exceed twenty percent of the equity (net of accumulated losses) of the banks / NBFIs or the party / institution to whom the funds are being lent or placed with, whichever is lower. Furthermore, compliance with all other relevant Prudential Regulations / Rules of Business for NBFIs shall be ensured.

e.            Banks/NBFIs shall be free to use FE 25 deposits for their trade-related activities provided the exchange risks are adequately covered and a square position is maintained.

f.            Foreign currency deposits mobilized under FE 25 scheme should not at any point exceed twenty percent of the local currency deposits of the banks / NBFIs at the close of business on the last working day of the preceding quarter.”

All Banks / NBFIs are advised to follow the above guidelines meticulously.

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