KARACHI, Feb 19: The State Bank has decided to introduce local US dollar instruments collection and settlement system from March 11 2004. All the banks operating in Pakistan whose head offices or branch offices are located in Karachi are supposed to participate in this system.

A circular (FE No 2) issued by the SBP Exchange Policy Department says that bank branches in Karachi, Lahore, Islamabad, Rawalpindi, Faisalabad, Multan, Sialkot, Peshawar, Quetta and Mirpur will participate in the scheme.

"Collection from all other cities will be arranged or managed by each bank by making internal arrangements through any one of the above cities," says the circular.

Addition of more cities will be considered in due course depending on the requirements and facilities for collection of instruments through courier services.

The circular says that local dollar instruments collection and settlement system is being introduced to make settlements quick and cost effective and facilitate the market.

"Presently the clearing process has to be routed through New York which takes a long time in settlement and the cost is also quite high for the account holders."

All financial instruments (cheques, drafts, etc.) denominated in the US dollar drawn on bank branches in the cities concerned will be acceptable under this settlement system.

Initially, there will be two collection and settlement days per week - Monday and Thursday. The NIFT - an agency that performs local currency clearance and settlements - will deal with only one designated office of each bank in Karachi for settlement of Karachi and upcountry branches.

Each bank may also designate one branch in each of the cities concerned with whom the NIFT and the designated branch of that bank in Karachi, if required, would liaise for issues regarding collection and settlement relating to other branches in that city.

All banks headquartered in Karachi or having branches in Karachi are supposed to open US dollar settlement account with a minimum balance of $10,000 for settlement with the SBP Banking Services Corporation, Karachi.

Thereafter, they will maintain sufficient balance to cater to the requirements keeping in view their business volumes. Such banks are also supposed to settle payment of US dollar instruments drawn on them through this system or to return unpaid instruments on settlement date.

In case the paying bank does not return the original instrument on the settlement date to the presenting bank, it will be assumed that the instrument has been accepted for payment and will be settled through this system accordingly.

The NIFT will charge the presenting bank Rs100 per instrument for its services and Rs100 for processing a return instrument. The net settlement will take place by debiting or crediting the respective banks' US dollar clearing accounts on settlement data.

Each bank will designate a branch/regional or head office in Karachi for presenting outward and receiving inward instruments for collection and settlement through the NIFT or National Institutional Facilitation Technologies.