KARACHI: The State Bank of Pakistan has provided more flexibility to bank treasuries to drop the condition of daily Cash Reserve Ratio (CRR) to 3 percent instead of 4 percent, while maintaining average CRR of 5 percent over a two-week period instead of one-week period.
Two circulars have been issued by SBP in this regard on Friday. Around Rs 5.1 trillion are held in Time and Demand Liabilities (TDLs) as the consequence of SBP fresh instructions. When the market is very tight in the term of liquidity, the two percent differential will allow banks to utilize up to Rs 100 billion from their CRR.
The SBP has clearly signalled to the banks that they need to manage their liquidity and gaps to perform their intermediary role effectively by providing flexibility through relaxation of reserve maintenance period to two weeks from one week and minimum daily CRR by one percent to increase ability to manage and yet has put a warning or proviso of specific stipulations against unbridled recourse to SBP window with a view to inculcating a prudent approach to strengthen their balance sheets rather rely on overnight liquidity.
According to the DMMD Circular No: 21, issued on Friday, in order to facilitate banks with regard to their liquidity management, the SBP has introduced some amendments in the in maintenance of Cash Reserve Ratio (CRR) Through these amendments, the SBP has also increased the reserve maintenance period by seven days. Now, it will be two weeks starting from Friday and ending on Thursday of subsequent week – previously it was one week.
According to the circular, Time and Demand Liabilities (TDLs) as of close of business on Friday (first day of reserve maintenance period) will be taken into account for determination of required CRR and if Friday is a holiday then TDL as of close of business on preceding working day will be taken into account.
All banks (including Islamic banks/branches) have to maintain CRR at an average of 5.0 percent of total demand liabilities (including time deposits with tenor of less than 1 year) during the reserve maintenance period.
However, daily minimum requirement is being reduced to 3 percent. Time liabilities (including time deposits with tenor of 1 year and above) will continue to be exempt from cash reserves.
According to SBP, DFIs will continue to maintain CRR at 1.0 percent of their Time and Demand Liabilities (TDLs) during the reserve maintenance period.
New measures will be effective from October 12, 2012. The TDL to be used for CRR maintenance period starting from October 12, 2012 and ending on October 25, 2012 would be as of October 12, 2012. All other instructions on the subject will, however, remain unchanged.
Meanwhile, the SBP has also decided that, for the purpose of maintaining Statutory Liquidity Requirement (SLR), during the fortnight starting from Friday and ending on Thursday of subsequent week, Time and Demand Liabilities (TDLs) as of close of business on Friday (first day of the fortnight) will be taken into account for determination of required SLR. If Friday is a holiday then TDL as of close of business on preceding working day will be taken into account.
The above instructions will be effective from October 12, 2012. The TDL to be used for SLR maintenance during fortnight starting from October 12, 2012 and ending on October 25, 2012 would be as of October 12, 2012. All other instructions on the subject shall, however, remain unchanged.