Circulars/Notifications  

 F.E. Circular No. 25
June 20, 1998 

All Authorised Dealers in Foreign
Exchange and Investment Bank Holding
Restricted Authorised Dealer's License,

Dear Sirs,

HOME REMITTANCE AND FOREIGN CURRENCY ACCOUNTS

In order to facilitate the flow of home remittances and mobilize foreign exchange resources the following instructions are issued.

A. HOME REMITTANCES AT THE RATE OF
Rs. 46 = $ 1 THROUGH BANKING CHANNELS.

All inward remittances of foreign currency under the Home Remittance Scheme shall be payable at the rate of Rs. 46 per US Dollar with effect from June 22, 1998. In the case of other currencies, the amounts would be payable at the above rate crossed with New York's closing mid rate for the previous working day. The difference between the Authorised Dealers applicable buying rates and the special rate at which payment is made may be claimed by the Authorised Dealers from the respective Chief Mangers of State Bank of Pakistan on submission of a statement showing total currency-wise amounts, the Authorised Dealers clean T.T. buying rate, the amount payable by them and the amount actually paid. The same principle will also apply to such payments made from non-resident rupee accounts of overseas bank branches and exchange companies. In other w3ords, payment to the beneficiaries of 'Home Remittance' will be made at the assumed rate of Rs. 46 per U.S. dollar, and the difference between this rate and T.T. clean buying rate claimed from the State Bank. Detailed item-wise statements of the differential so claimed shall be maintained by the Authorised Dealers for inspection by the Banking Supervision Department. The State Bank will carryout a random check to ensure that the foreign branches of the Authorised Dealers receive and transfer home remittances promptly and efficiently. Any negligence or delay will invite strong action by the State Bank of Pakistan.

B. NEW FOREIGN CURRENCY ACCOUNTS UNDER NEW RULES.

1. It has been decided to allow the opening and free operation of new foreign currency deposit accounts by residents as well as non-residents under new rules. Commercial Banks holding licenses as Authorised Dealers and those Non-Bank Financial institutions which have been given restricted Authorised Dealers licenses for this purpose, are free to accept foreign currency deposits (or issue certificates of investment, as applicable) from any person (which term includes residents as well as non-residents, Pakistani and foreign nationals, a firm, company and other legal entities) in any foreign currency. The NBFIs and banks accepting the funds would not be required to surrender the same to the State bank nor the State Bank would provide a forward cover in respect of such accounts. The institutions accepting such funds will be free to keep / invest the same abroad, in addition to their usual Nostro balances or to invest / lend it in Pakistan. They will also be free to recover reasonable bank charges on handling cash transactions in foreign currencies received into or paid out of such accounts. The balances of new foreign currency accounts will not be required to be reported to the State Bank of Pakistan in the statement prescribed on pages of Appendix V of the Foreign Exchange Manual. Instruction regarding reporting for monitoring purposes of transactions under the new scheme will be issued separately.

2. The Authorized Dealers will be free to decide the rate of return that they offer to the depositors. They would also be free to lend / invest the funds so mobilized in any manner they like and they will also be free to cover their exchange risk in any manner, as they would be required to maintain a 'square' position in respect of these funds.

3. New foreign currency accounts would be allowed by the Authorised Dealers under the above system with effect from June 22, 1998. These instructions would also apply to all those account-holders who have been allowed to continue to operate their foreign currency accounts vide F.E. Circular Nos. 12 and 17 of 1998 and any subsequent amendment thereof as well as through letters addressed by the Foreign Exchange Department to the individual Authorised Dealers / Account-holders. Authorised Dealers will, however, ensure that the proceeds of goods exported form Pakistan, and payments received for services rendered in Pakistan are not credited to such accounts.

4. It would be permissible for the Authorised Dealers to lend such funds to borrowers in Pakistan, subject to observance of regulations prescribed by the Banking Policy & Regulations Department. Before lending any money in foreign currency to persons / firms etc. in Pakistan observance of usual standards of prudence, including the ability of the borrower to repay the loan, would be ensured.

5. In the case of a loan to an exporter, it would be permissible to adjust the foreign currency proceeds of exports in repayment of the loan and profits / interest thereon, only if the exporter has surrendered the full proceeds of the loan to an Authorised Dealer against payment in rupees. In the case of a loan against imports, the importer can obtain foreign exchange to the extent of the C & F value of the imports, from an Authorised Dealer, if such import and payment therefore are covered by the ITC and foreign exchange regulations, and use the same for repayment of the loan. The payment of profit / interest will, however, have to be made by him from his own resources. In the case of all other loans, the borrower will pay profit/interest and repay the loan from his own resources.

6. With the coming into force to these instructions, no new account will be opened under the old scheme nor any fresh credit made into the existing accounts except interest / profit and items in transit on 28th May, 1998. The existing non-resident foreign currency accounts of overseas Pakistanis can, however, receive fresh remittances, which can be withdrawn in rupees at the special rate of Rs. 46 per dollar as mentioned in F.E. Circular No. 12 of 1998. The exempted category of account-holders may continue to operate their existing accounts in accordance with the existing instructions or may open new accounts in terms of this circular, if they so wish. Forward cover will continue to be provided by the State Bank for permitted fresh credits in the existing accounts as well as for F.E. 45 deposits.

7. It has been decided by the Government that the accounts opened under this scheme will enjoy the protections available under the Protection of Economic Reforms Act, 1992.

8. Authorised Dealers will maintain a separate ledger for the new accounts opened under this scheme, in order to distinguish them from the existing foreign currency accounts.

9. The regulations relating to CRR, SLR and capital adequacy would also apply to these deposits. The figures of assets and liabilities in foreign currencies would be converted into rupees at the convened Authorised Dealers buying rate, for the purpose of reporting in the returns prescribed under the SBP Act and BCO. Those Authorised Dealers which do not quote their own rates for foreign currencies, (i.e. NBFIs), or which do not quote the rate for any particular currency, may adopt consistently the rates quoted by another Authorised Dealers.

C. NATIONAL DEBT RETIREMENT PROGRAMME.

1. As already advised vide F.E. Circular No. 17 and 24 of 1998, there is no restriction on receipt of fresh deposits under this scheme and the amounts payable under the scheme shall continue to be paid in the respective foreign currencies on maturity.

2. The amount remitted under the above scheme in profit bearing deposits can, however, be converted into rupees at the rate of Rs. 46 per dollar (or the applicable rats for other currencies), at any time. The restriction on encashment before two years is hereby withdrawn of the purpose of conversion into rupees. Such encashment will, however, be subject to the condition that the depositor will adjust the difference of the return already paid to him on quarterly basis at the rate mentioned in F.E. Circular No. 2 of 1997 and the rate payable under the foreign currency deposit scheme for the completed period on quarterly basis for which the deposit has been held. For instance, if a deposit under the national Debt Retirement Programme was made in US dollar on 15th July, 1997 for five years, on which return was payable at the rate of 9% per annum, and it is encashed on 17th June, 1998 (i.e. after completion of three quarters), the deposit would deem to have earned return at the rate payable on a six months deposit under the FCA Scheme, which was 6.3438 per annum. The difference between the amount of return already paid and the revised amount admissible would be deducted from the principal amount before allowing encashment.

3. The deposits received as Qarz-e-Hasna and those received for investment in return bearing account can, on maturity, be rolled over at the request of the depositors. It is also permissible to change the maturity of a deposit from a lower initial period to a longer period. Such elongation of maturates would entitle the depositor to receive the higher applicable return even for the previous quarters. For instance, if a deposit was placed in US dollar for a period of three years at the rate of 8.00% per annum, and the maturity is increased to five years which attracts a return at the rate of 9% per annum, the difference of 1% would also be paid for the earlier quarterly periods


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