Please
refer to BSD Circular No. 19 dated March 31, 2001 on the above
subject.
In view of requests of the Banks/ NBFIs, the matter
has been revisited and it has been decided to substitute the
aforesaid BSD Circular as under:
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)
Placement of funds of FE-25 deposits with any one bank/financial
institution, whether in Pakistan or abroad, shall not exceed
twenty percent of the equity (net of accumulated losses) of
the bank/ NBFI or of the institution with whom the funds are
being placed, whichever is higher. 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 month. Banks/ NBFIs who
were in breach of the limit as of end March 2001 shall ensure
compliance by January 1, 2002.
Please acknowledge receipt.
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