In order to further streamline Islamic Banking industry, the State Bank of Pakistan (SBP) on Wednesday announced to raise the Statutory Liquidity Requirement (SLR) for Islamic Banks by 5 percent to 14 percent. Now all Islamic Banks and Islamic Banking Branches are required to maintain a minimum 14 percent SLR condition effective from April 01, 2011, as compared to 9 percent presently. However, Cash Reserve Requirement (CRR) will remain 5 percent.
Sources said that issuance of long term Islamic papers "Sukuk by the government has opened some windows to enhance the SLR of Islamic banking industry. In this regard the SBP has issued a circular DMMD No 1 of 2011 to the presidents and chief executive officers of all Islamic Banks and Islamic Banking Branches.
According to the SBP Circular, in exercise of the powers conferred upon the State Bank of Pakistan under section 36 of the State Bank of Pakistan Act, 1956, and section 29 of the Banking companies Ordinance, 1962, it has been decided to increase the Statutory Liquidity Requirement (SLR) for Islamic Banks and Islamic Banking Branches.
With effective from April 01, 2011, SLR of Islamic Banks and Islamic banking branches should be 14 percent (excluding CRR) of Total Demand Liabilities (including Time deposits with tenors of less than 1 year). While, Time Liabilities (including Time deposits with tenor of 1 year and above) will not require any SLR.
SLR can be maintained in the form of cash in hand, balance with NBP in current account, balance with SBP in current account and Un-encumbered Approved Securities as notified by SBP from time to time. In addition for SLR purpose all holdings of GOP Ijara Sukuk (GIS) will be fully counted. Holdings of 'SBP approved' SLR eligible 'Public Sector' Sukuks will be counted up to 7 percent of total time and demand liabilities. However, single issuer holding limit of 5 percent of total time and demand liabilities stands abolished. This will also be effective from April 01, 2011. All other instructions on the subject shall remain unchanged.