The President/Chief Executive,
All Banks

Dear Sir/Madam,

Reserve Requirements Against FE-25 Deposits Maintained by IBs & IBBs

State Bank of Pakistan has prescribed the mechanism for maintenance of reserve requirements against FE-25 deposits vide BSD Circular No. 18 dated 31st March 2001 (later amended vide BSD Circular No. 16 of 2002). After the establishment of Islamic Banks (IBs) /Islamic Banking Branches (IBBs) of conventional banks, in order to ensure Shariah compliance and segregation of funds in case of IBBs, the reserve requirements for FE-25 deposits mobilized by these IBs/IBBs have been advised to them individually. As new IBs/IBBs are being established which are desirous of offering FE-25 deposits schemes to their customers in a Shariah compliant manner, the following instructions are being issued to IBs/IBBs regarding reserve requirements against FE-25 deposits.

2. Cash Reserve Requirement (CRR):
IBs will maintain CRR prescribed in BSD Circular 16 of 2002 against the F.E. 25 deposits, in a current account in US$ with SBP. Currently this requirement is 5% of total FE-25 deposits to be maintained on daily basis. Conventional Banks having Islamic Banking Branches will be required to open a separate current account in US$ with SBP for the purpose.

Special Cash Reserve (SCR):
In addition to the CRR, IBs/IBBs will maintain Special Cash Reserve at 6% of their total FE-25 deposits in the same current account in US$ on non-remunerative basis till some Shariah compliant foreign currency instruments are developed.

Therefore in all, the IBs/IBBs will maintain 11% of their FE-25 deposits in this current account on daily basis in lieu of CRR and SCR.

3. It should be noted that before accepting any FE-25 deposits, IBs/IBBs are required to send details of the scheme to Islamic Banking Department, SBP alongwith profit sharing mechanism for the foreign currency saving and term deposits schemes as well as fund management policy duly vetted by their Shariah Advisor. SBP(BSC) will open US$ current account of IBs/IBBs with prior clearance from Islamic Banking Department, State Bank Of Pakistan.

4. It is advised to ensure compliance with these instructions and it may also be noted that any failure to comply with the prescribed Cash Reserve and Special Cash Reserve Requirement against FE-25 deposits will attract penalties under the Banking Companies Ordinance, 1962.
5. All other instructions on the subject will remain unchanged.

Please acknowledge receipt.