The State Bank of Pakistan has allowed banks and DFIs to invest in commercial papers (CP) without obtaining formal approval from it. SBP on Saturday amended Para 5(vi) of Guidelines on Commercial Paper, under which banks would be able to invest in the commercial papers without prior SBP approval.
However, the SBP has instructed banks and DFIs to take appropriate measures to avoid any risk in the investment in the CPs, and the investment should be in line with the policy approved by respective banks/DFIs board of directors. In this regard SBP has issued circular BPRD No 14 which reads as follows.
AMENDMENT OF PARA 5(VI) OF GUIDELINES ON COMMERCIAL PAPER: Please refer to the Para 5(vi) of the Guidelines on Commercial Paper (CP) communicated vide BPD Circular No 28 dated August 23, 2003 whereby banks/DFIs interested in investing in CP were required to obtain one-time prior approval from SBP for commencing/undertaking such activity.
2 IT HAS BEEN DECIDED TO REPLACE PARA 5(VI) OF THE ABOVE MENTIONED CIRCULAR WITH THE FOLLOWING PARA WITH IMMEDIATE EFFECT: "5 (vi) The banks/DFIs may make investment in Commercial Paper (CP) as per policy approved by their Board of Directors and keeping in view the bank''s /DFI''s equity. However, the bank/DFI would ensure that the risks associated with investment in CP are in line with the risk taking capacity of the bank/DFI and appropriate measures have been taken to mitigate these risks". 3. All other instructions on the subject remain unchanged.