KARACHI, April 7: The State Bank of Pakistan has slashed special cash reserve requirement (SCRR) of Islamic banks, apparently in a move to generate liquidity before the launching of Sukuk bonds.

A circular issued by the SBP on Monday said that the SCRR of Islamic banks (IBs) and Islamic bank branches (IBBs) had been reduced to 2 per cent from 6 per cent of their FE-25 deposits.

Currently the IBs and IBBs are required to maintain cash reserve in US dollars equivalent to not less than 11 per cent of their total FE-25 deposits on a daily basis with the SBP.

These banks maintain 5 per cent cash reserve requirement (CRR) and 6 per cent special cash reserve requirement (SCRR) with the SBP.

“It has been decided to reduce the SCRR for IBs and IBBs from 6 per cent to 2 per cent of total FE-25 deposits with immediate effect,” said the SBP circular.

Now the IBs and IBBs will maintain 7 per cent (including 5 per cent CRR and 2 per cent SCRR) of their FE-25 deposits with the central bank in the current account.

Banking sources said the SBP suddenly reduced the SCRR to generate liquidity in the Islamic banks which will help them to absorb the expected Sukuk bonds to be launched soon by the government.

The size of the Sukuk bonds, which will be in the local currency, has yet not been decided. However, banks have been making presentation to get place in the launching of Sukuk.

A top banking source said two or three banks may jointly handle the launching of Sukuk.