The State Bank of Pakistan''s liquidity package worth Rs 270 billion for banks to provide additional liquidity completed on Saturday as the central bank further reduced the Cash Reserves Requirement (CRR) by 100 bps to 5 percent.
Amendment in the Advance Deposit Ratio (ADR) already has enhanced the banks'' existing lending capacity to Rs 550 billion as the average of advance-to-deposit ratio has dropped from 75 to 57 percent.
Banks were facing huge liquidity shortage for last two months due to the tremendous withdrawals of cash from banks in the wake of default remorse, as a result of which the overnight rate reached new peak of 40-48 percent in the domestic market.
Therefore, keeping in view overall liquidity condition of the market, Governor, State Bank of Pakistan, Dr Shamshad Akhtar, announced a relief package of Rs 270 billion to bring out the banks of the liquidity crunch.
To met the banks'' liquidity requirements, the SBP decided to take some new measures and provided some relief to the banks and announced phase-wise reduction in CRR by 4 percent, besides exempting the time deposits of 1 year tenor and above from Statutory Liquidity Requirements (SLR). The SBP has decided to reduced the CRR by 100 bps from November 1, 2008 instead of November 15 2008.
The SBP on Saturday issued a circular to the Presidents and Chief Executive Officers of all banks including Islamic banks, which said: "It has been decided to reduce Cash Reserve Requirements by 1 percent to 5 percent as under, with immediate effect, instead of 15th November 2008 as earlier notified."
The SBP has instructed banks to make sure weekly average of CRR at 5 percent (subject to daily minimum of 4 percent) of total Demand Liabilities (including Time Deposits with tenor of less than 1 year). However, Time Liabilities (including Time Deposits with tenor of 1 year and above) will not require any Cash Reserve.
The current mover of central bank would inject a liquidity of Rs 30 billion in the banking system easing them to meet their customers'' demand, while cumulatively with SBP''s current and previous moves will have released liquidity of Rs 270 billion in the banking system.