The State Bank of Pakistan (SBP) has revised its guidelines regarding the minimum profit rate on deposits, effective January 1, 2025. The updated instructions exclude deposits held by financial institutions, public sector enterprises, and public limited companies from the minimum profit rate requirements, marking a significant shift in the central bank’s regulatory framework.
This announcement, made on November 26, 2024, builds on earlier directives issued through Circular No. 05 of 2014 and BPRD Circular No. 07 of 2013. The SBP had previously mandated that the minimum profit rate on all Pakistani Rupee saving deposits would be 50 basis points below the prevailing SBP Repo Rate (Interest Rate Corridor – Floor). Any adjustments to the repo rate would necessitate corresponding changes to the minimum profit rate, effective from the first day of the following month.
Under the updated framework, the minimum profit rate will continue to apply to the average monthly balances of all savings deposits, including both new and existing term deposits, except for the excluded categories. The SBP emphasized that all other instructions regarding deposit profit rates remain unchanged. Non-compliance will attract punitive actions under the Banking Companies Ordinance, 1962.
The revisions are part of the SBP’s broader efforts to refine banking regulations and enhance financial sector stability. By removing the minimum profit rate requirement for specific entities, the central bank aims to provide greater operational flexibility for financial institutions. This change is expected to enable banks to implement more targeted deposit strategies, aligning their operations with broader economic goals.
Additionally, the SBP clarified that profit rates on saving deposits for Islamic banks, including their branches or windows, will continue to be governed by the provisions outlined in IBD Circular No. 03, issued on November 19, 2012. This ensures that the specific needs of Islamic banking operations remain accommodated within the regulatory framework.
Experts view this move as a step toward streamlining Pakistan’s financial regulations. By focusing on creating a balance between regulatory compliance and operational efficiency, the SBP seeks to foster a more dynamic and resilient banking sector. The exclusion of deposits from financial institutions and public entities reflects the central bank’s commitment to tailoring its policies to the unique requirements of various economic stakeholders.
These adjustments come at a time when Pakistan’s financial landscape is undergoing significant changes, driven by evolving economic challenges and opportunities. The SBP’s updated profit rate policies aim to support the banking sector in navigating these shifts while maintaining stability and fostering growth in the broader economy.