The State Bank has abolished the Minimum Deposit Rate (MDR) for conventional banks regarding deposits from financial institutions, public sector enterprises, and public limited companies. On Tuesday, the bank issued two circulars, one for conventional banks and another for Islamic banking institutions (IBIs), detailing the changes and providing specific instructions for IBIs.
Previously, the MDR ensured that depositors at conventional banks received returns 150 basis points below the prevailing policy rate. This requirement is now limited to individual account holders.
This policy change will favour banks with substantial corporate deposits. They are no longer bound to the MDR and can now negotiate minimum rates directly with corporate entities. It will be effective January 1 next year.
Individual depositors will continue to be protected under the existing MDR rules.
Another circular specifies that Islamic Banking Institutions (IBIs) must pay profits on rupee savings deposits, at least 75% of all asset pools’ weighted average gross yield, excluding certain bank assets and pools used for specific Shariah-compliant operations.
Read: Pakistani Banks Charge Extra Fees on Large Deposits to Evade New Tax
IBIs can lower their profit-sharing rate by offering Hiba (gifts) to depositors when returns are below anticipated levels to align with market expectations. IBIs may also grant Hiba the ability to fulfil minimum profit rate requirements on savings accounts. These changes will also take effect at the start of next year.
Sunny Kumar from Topline Research notes that of the total Rs27 trillion deposits at all listed banks, 53% (Rs14 trillion) are corporate deposits. Other major banks like MCB Bank, Bank Al Habib, Habib Bank, and United Bank report 35-40% corporate exposure.
