KARACHI, Feb 15: Islamic banks (IBs) have been allowed to use Wapda Sukuk for meeting Statutory Liquidity Requirement (SLR) which would be first Islamic bonds to be used as security papers like T-bills.

The SBP on Wednesday issued a circular with decision to revise the Cash Reserve Requirement (CRR) and SLR for Islamic banks and Islamic bank branches.

The government had already declared Wapda Sukuk as approved security for the purpose of meeting SLR.

Wapda issued first local currency Islamic certificates Sukuk last month. This was the first Islamic bonds in local currency which could be used as security papers by the Islamic banks.

In the case of commercial banks, the central bank said, Islamic banks will maintain CRR of 5 per cent of their time and demand liabilities (TDL) on weekly average basis subject to daily minimum of 4 per cent.

In addition to the CRR, Islamic banks and Islamic bank branches would maintain SLR of 8 per cent of their TDL on overall basis, in the form of investment in Wapda Sukuk not exceeding 5 per cent of their TDL and remaining in the shape of cash balance with SBP in Special Deposit Accounts.

State Bank has realized that Islamic banks require instruments like treasury bills but they should be Shariah-compliant. Wapda Sukuk provided the first Islamic instrument which might bring some depth in the reserves of the Islamic banks.

Analysts said that the potential of Islamic banking, which is still in its initial stages, was yet to be tapped to improve the volume of the business.

They said that the successful launch of Wapda Sukuk could bring more activity in this field and more Sukuk would join the market.

Banking sector sources believed that Wapda would utilize the funds generated through Sukuk to partially finance its Mangla Dam Raising Project.

Analysts said that this transaction allowed Wapda to capitalize on the appetite of Islamic investors and tap an alternate source of funding. It has also served to create a template for future issuances of Sukuk, which will facilitate local infrastructure development needs and reinforce the objective of the GoP and SBP of promoting Islamic banking and Islamic investment products.