State Bank of Pakistan (SBP) has tightened its regulations for banks for maintaining cash reserves, securities and assets amount on daily basis, warning them of penalties in case they do not meet the revised values and limit of cash and gold reserves.
Statutory Liquidity Requirement (SLR)
Statutory Liquidity Requirement (SLR) is the term for the reserve requirement that the commercial banks are required to maintain in State Bank of Pakistan (SBP) in the form of cash, gold reserves, government approved securities before providing credit to the customers.
According to SBP’s new directives, banks are required to maintain Statutory Liquidity Requirement (SLR) in cash, gold or unencumbered approved securities valued at a price not exceeding “the lower of the cost or the current market price” equivalent to an amount which shall not, at the close of business on any day, be less than “such percentage” of the total of their time and demand liabilities in Pakistan.
“Balances (of banks) with SBP” are part of liquid assets, therefore, SBP monitors maintenance of liquid assets requirement by adding SLR and CRR. For instance, SLR is 19% and 14% for conventional banks and IBs/IBBs respectively, whereas CRR for all banks is 5%. Accordingly, SBP will monitor liquid asset requirement at 24% and 19% for conventional banks and IBs/IBBs respectively.
In case of shortfall in maintenance of liquid assets, banks are liable to pay penalty at Rs.86/- per hundred thousand or part thereof per day.
Furthermore, in case of default in maintenance of prescribed liquid assets on two or more consecutive reporting dates, the penalty for the working days in between the reporting dates will be levied on the basis of the shortfall in maintenance of liquid assets as of the previous reporting date.
Cash Reserve Requirement
Cash Reserve Requirement (CRR) is a certain percentage of the total bank deposits that has to be kept in the current account with State Bank of Pakistan (SBP), which means banks do not have access to that much amount for any economic activity or commercial activity
At present, Cash Reserves are required to be maintained at an average of 5% of the 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%.
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.
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.
According to SBP, 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 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.