In terms of Section 36(1) of State Bank of Pakistan Act, 1956, State Bank of Pakistan (SBP) has been issuing instructions from time to time regarding the percentage of Cash Reserve balances to be maintained and the manner in which the required cash reserve balance will be calculated by the banks. In order to facilitate banks to ensure meticulous compliance with the Cash Reserve Requirement (CRR), SBP has consolidated the existing instructions on the subject in the form of this Master Circular, which are as under:
1. Maintenance of CRR:
Every scheduled bank shall maintain CRR in the form of balances in its current account maintained with SBP.
2. Reserve Maintenance Period:
Currently, the reserve maintenance period is of two weeks starting from Friday and ending on Thursday of the subsequent week.
3. Rate of CRR:
a) At present Cash Reserves are required to be maintained at an average of 5% of total of demand liabilities and time deposits with tenor of less than 1 year, during the reserve maintenance period; however it is subject to a daily minimum requirement of 3%.
b) Time Liabilities, excluding time deposits with tenor of less than one year, are exempted from maintenance of cash reserves.
c) Tenor means original fixed term of the time deposits at the time of booking and does not indicate remaining maturity period of the time deposits.
4. Applicable Liabilities for determination of CRR:
a) The Liabilities which are subject to CRR and liabilities that are exempted from maintenance of CRR are given in enclosed Annexure-A.
b) Liabilities as of close of business on Friday (first day of reserve maintenance period) will be taken into account for determination of required CRR. If Friday is a holiday then Liabilities as of close of business on preceding working day will be taken into account.
c) The financing provided by the banks, under Microfinance Credit Guarantee Facility (MCGF) to eligible Microfinance Banks/Microfinance Institutions, shall be deductible from Liabilities (subject to CRR) of the lending institutions for the purpose of CRR calculation. This incentive will only be available for financing provided by banks before cease of MCGF by SBP in terms of AC&MFD circular no. 01 of 2017.
5. Maintenance of CRR on Premature Withdrawal of Time Deposits:
If Time Deposits having tenor of one year and above are withdrawn prematurely before completion of one year, the bank is required to maintain an additional CRR at the rate equivalent to the difference (if any) between CRR applicable on Time Deposits with tenor of less than one year (i.e. currently 5%) and Time Deposits with tenor of one year and above (i.e. currently zero). The additional CRR will be applicable on the amount of such premature withdrawal and for the period for which bank availed the benefit of lower CRR.
6. Penalty on default in maintaining CRR:
a) For levy of penalty on default in maintaining average balance, the minimum balance required to be maintained during the reserve maintenance period shall be the product of CRR Rate (Average i.e. currently 5%), Liabilities (subject to CRR) and number of days in the reserve maintenance period.
b) Minimum balance required to be maintained, as calculated above, will be compared with the aggregate of the balances maintained during the reserve maintenance period with SBP. If the aggregate balance maintained, during the reserve maintenance period, is below the minimum balance required to be maintained, the bank shall render itself liable to pay the penalty. The penalty shall be levied on the shortfall between the aggregate balance maintained and the aggregate minimum balance required to be maintained during the reserve maintenance period.
c) If any bank maintains the required average balance (currently 5%) during the reserve maintenance period but fails to maintain a daily minimum balance (currently 3%) at the close of business on any day, such bank shall also render itself liable to pay the penalty.
d) While calculating the CRR, the balances maintained as per books of SBP shall be taken into account.
e) The rate of penalty for default in maintenance of CRR is (a) Rs.69/- per 100,000/- or part thereof per day on the amount by which the balance with SBP falls short of the required balance; (b) if the shortfall continues in the subsequent reserve maintenance period or thereafter, the penalty shall be increased to Rs.86/- per 100,000/- or part thereof per day.
7. This will supersede all previous instructions issued on the subject.