Please refer to BSD Circular No. 07 dated April 15, 2009 wherein the minimum paid-up capital (net of losses) requirement (MCR) of Rs. 10 billion and Capital Adequacy Ratio (CAR) of 10% were prescribed.

2. With a view to encourage the conventional banks to upscale their Islamic banking operations by establishing Islamic banking subsidiaries, the initial paid-up capital requirement has been revised to Rs.6 billion. However, the intending Islamic banking subsidiary shall be required to raise its paid-up capital (net of losses) upto Rs.10 billion within a period of 5 years from the date of commencement of its operations. In this regard, the bank will have to submit a capital plan/ projection for meeting the MCR of Rs.10 billion duly approved by the Board of Directors of the parent company at the time of applying for banking license to SBP. Subsequently, these projections will be endorsed by the subsidiary’s board.

3. During the transitory period of five (5) years, the Islamic banking subsidiary shall maintain the following variable CAR requirement depending on the MCR level held:

MCR Level	CAR Requirement
Rs. 6 billion	16%
Rs. 7 billion	15%
Rs. 8 billion	14%
Rs. 9 billion	13%
Rs. 10 billion	As per CAR applicable under Basel-III rules

4. No cash dividend shall be paid till such time the subsidiary meets the MCR of Rs. 10 billion and prescribed CAR requirements.

5. In addition to the above, the parent bank shall meet the minimum applicable CAR, on consolidated as well as on standalone basis.

6. The above instructions will replace the MCR and CAR requirements prescribed in Para 3 (vi) of Annexure-II to IBD Circular No. 2 of April 29, 2004. All other instructions on the subject shall remain the same.

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