Circulars/Notifications - Banking Supervision Department  
 BSD Circular No. 6 of 2005
October 28, 2005 

The Presidents / Chief Executives
All Banks / DFIs

Dear Sirs/Madam,


Please refer to BSD Circular No.12 dated 25th August, 2004 on the above subject.

2) In order to further strengthen the solvency of individual banks/DFIs, it has been decided to raise the minimum paid up capital as well as Capital Adequacy Ratio based on Risk Weighted Assets (CAR) as under:

i) The existing minimum paid up capital requirement for locally incorporated banks/DFIs has been raised to Rs 6 billion (net of losses) to be achieved in a phased manner as follows:
Minimum Paid-up Capital Deadline by which to be increased
(net of losses) to be increased to :  
a) Rs 3 billion By 31-12-2006
b) Rs 4 billionn By 31-12-2007
c) Rs 5 billion By 31-12-2008
d) Rs 6 billion By 31-12-2009

The branches of foreign banks operating in Pakistan will also be required to increase their assigned capital to Rs 6 billion within the above timelines prescribed for the locally incorporated banks/DFIs. However, those branches of foreign banks whose Head Offices hold a minimum paid up capital of US $ 100 million (net of losses) and have a CAR of 9% (determined as per Basel-I or Basel-II Accord) can be allowed to continue to maintain the minimum assigned capital of Rs 2 billion (net of losses). All such branches of foreign banks shall, however, be required to seek specific permission from the State Bank to maintain the minimum assigned capital (net of losses) of Rs 2 billion effective from 31st December, 2005.

(ii) The required minimum CAR, on consolidated as well as on stand alone basis, would continue to be 8%. However, the existing uniform requirement for CAR has been replaced with the variable CAR which will be based on the Institutional Risk Assessment Framework (IRAF) Rating assigned by the State Bank to each bank and DFI. For this purpose, SBP will intimate IRAF rating to each bank/DFI separately. Under IRAF, each bank and DFI is rated on a scale of 1 to 5 based on its (a) compliance with standards, codes and guidelines; (b) supervisory and regulatory information; (c) financial performance and condition; and (d) market information and intelligence. The required variable CAR to be maintained by each bank/DFI will be determined as follows:
IRAF Rating Required CAR effective from
  31st Dec. 2005 31st Dec., 2006 and onwards
1 & 2 8% 8%
3 9% 10%
4 10% 12%
5 12% 14%


However, the banks/DFIs at the margin of the IRAF rating category which, in the opinion of the regulator, have high risk propensity may be asked to further increase the required CAR by One (1) percentage point.

3) The required minimum paid up capital as well as CAR can be achieved by the banks/DFIs either by fresh capital injection or retention of profits. The stock dividend declared after meeting all the legal and regulatory requirements, and duly reflected as such in the Annual Audited Accounts will be counted towards the required paid up capital of the bank/DFI pending completion of the formalities for issuance of bonus shares.

4)BSD Circular No.12 dated 25th August, 2004 shall stand amended according to Para 2 above, whereas Para 3 of the said circular has been substituted as under:

“Any bank/DFI that fails to meet the minimum paid up capital requirement or CAR within the stipulated period shall render itself liable to the following actions:

i) Imposition of such restrictions on its business including restrictions on acceptance of deposits and lending as may be deemed fit by the State Bank.

ii) Descheduling of the bank, thereby converting it into a non-scheduled bank.

iii) Cancellation of the banking license if the State Bank believes that the bank is not in a position to meet the minimum paid up capital requirement or CAR.”

5) The above instructions will become effective from 31st December, 2005.

6) All other instructions on the subject shall, however, remain unchanged.

Please acknowledge receipt.

Yours faithfully,


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