Conventional to Islamic mode: SBP sets new bank branch conversion criteria

KARACHI: With a view to further facilitate banks in conversion of their branches, the State Bank of Pakistan (SBP) has revised the criteria for conversion of conventional banking branches into Islamic banking branches keeping in view the industry’s needs and issues.

According to the SBP, the revised criteria will help to streamline the process for conversion of their conventional branches. Previously, SBP in 2010 issued the criteria for conversion of conventional banking branches into Islamic banking branches.

In order to further facilitate and accelerate the conversion of branches, banks may establish a virtual conventional cost center (s) on a temporary basis to park unconvertible deposits and asset portfolio of converted branches with the approval of bank’s Shariah Board.

Conventional to Islamic banking: SBP issues broad parameters for conversion

All conventional banks having Islamic operations or those who intend to start Islamic banking operations shall be eligible to apply for conversion of its existing conventional branches into Islamic.

The bank is required to submit its Annual Branch Conversion Plan (ABCP) aligned with its overall conversion plan along with a specific request for in-principle approval to convert its conventional branches into Islamic to Banking Policy & Regulations Department (BPRD) with a copy to Islamic Finance Policy Department (IFPD), SBP by 31st October of each preceding calendar year.

Besides ABCP, bank may also approach SBP for approval of conversion of its conventional branches any time on a case-to-case basis.

The bank will inform the general public and account holders about conversion of its respective conventional branches into Islamic at least three and a half months before the conversion.

The bank will also approach account holders for seeking their consent for conversion of accounts through any appropriate channel such as letters, emails, SMS, telephone calls, any digital mode, etc.

However, the bank will provide at least thirty (30) days to the account holders for submission of consent or dissent on conversion of their accounts.

The bank will also ensure that the account holders are fully informed with new terms and conditions and any change in fee or paid services provided by the bank after conversion from conventional accounts to Islamic accounts. The bank will ensure that account holders are fully informed about alternative Islamic banking products including their features while providing an option for conversion.

The bank will provide clear information regarding expected profit rate(s) on each category of remunerative Islamic deposits. While, in case of consent by the account holders, the accounts will be converted from conventional to Islamic whereas in case of dissent of the account holders on conversion of accounts, the bank may either allow transfer of their accounts to another conventional banking branch or close the accounts as per choice of the account holders.

Fresh instructions will also be applicable to MFBs for the purpose of conversion of their branches from conventional to Islamic. The terms ‘Shariah Board’ and ‘Shariah Advisor’ shall be used interchangeably as deemed appropriate for MFBs operating with Shariah Board or Shariah Advisor.

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