KARACHI, Feb 8: The State Bank has threatened to cancel licences of those banks which will not submit their plans for meeting minimum capital requirement (MCR) by April 30, 2007.

The harsh warning by the central bank was received as a shock by some small banks unable to raise their paid-up capital up to Rs4 billion by end December 2007.

“All banks and DFIs, which, at present, are anticipating shortfall in MCR compliance for the coming year-end, are required to develop realistic plans accordingly on annual basis to meet the prescribed MCR,” said a circular issued by the State Bank on Thursday.

The plans to meet the threshold of Rs4 billion by December 31, 2007 may be submitted by April 30 positively, it said.

The SBP has asked all banks to provide a copy of such plans, duly approved by their board of directors, which should reach the Banking Surveillance Department by April 30 of every year (i.e. up to 2009).

“Failure of the banks or DFIs to meet the prescribed MCR of Rs4 billion by December 2007 will automatically invoke penal provisions,” said the circular.

The SBP warned that failure of meeting MCR condition could result into cancellation of banking license as the SBP would believe that the bank is not in a position to meet the minimum paid up capital requirement.

The SBP could impose restrictions on bank’s business, including restrictions on acceptance of deposits and lending as may be deemed fit by the State Bank.

The SBP could de-schedule bank, thereby converting it into a non-scheduled bank, it added.

Bankers said that no large bank would be affected with this sudden action by the SBP as all of them have more than the required paid-up capital.

However, a number of small banks have been facing difficulty to meet the increasing paid-up capital, which would reach Rs6 billion by 2009.

It would further accelerate activities in the banking sector, especially by the small banks to sell out their banks at a better price. A local bank has been given exemption twice as it failed to meet the paid-up capital requirement.

Bankers said that the small banks had been involved in raising liquidity from big business houses at the end of each year to meet the paid-up capital requirement and that arranging liquidity was much costlier than what they have been lending to borrowers. The earlier plan to raise the paid-up capital would expose the ability of a bank to increase its paid-up capital, they said.

Analysts said that the selling of banks these days was lucrative as banks had been making record profits for last three years. Also, a number of large foreign banks are in the market to buy local Pakistani banks to establish their presence in the country.

Recently, Standard Chartered Bank bought Union Bank at a very attractive price while the ABN Amro is close to acquiring Prime Bank.

Stakes in the PICIC (Pakistan Industrial Credit Investment Corporation) were sold to NIB Bank, a subsidiary of Singapore's state investment agency Temasek.