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State Bank Removes Minimum Deposit Rate for Corporate Deposits, Effective Jan 1
SBP removes the Minimum Deposit Rate (MDR) for corporate deposits, effective Jan 1, 2025—a boost for banks with high corporate deposit mixes.
ND
by News Desk
2024-11-27
State Bank Removes Minimum Deposit Rate for Corporate Deposits, Effective Jan 1

The State Bank of Pakistan (SBP) has decided to remove the Minimum Deposit Rate (MDR) requirement for all conventional banks on deposits from financial institutions, public sector enterprises, and public limited companies. This decision, announced in two circulars issued on Tuesday, is set to impact the banking sector starting January 1, 2025.

 

Key Details of the SBP Circular

Previously, the MDR required conventional banks to pay depositors at least 150 basis points below the prevailing policy rate on corporate deposits. For example, with the policy rate at 15%, banks were bound to pay a minimum return of 13.5% to corporate depositors. However, this new policy removes this obligation for corporate deposits, including those from financial institutions and public sector enterprises.

 

Under the new instructions, the MDR will continue to apply only to individual deposits, ensuring that retail depositors are still protected by the minimum return rates. According to the circular, banks can now negotiate the rates with corporate depositors, offering more flexibility in how returns are structured.

 

Impact on Banks

The removal of the MDR is expected to benefit banks that have a significant share of corporate deposits in their portfolio. According to banking experts, banks with a higher proportion of corporate deposits—such as Bank of Punjab, Bank of Khyber, and National Bank—will now have more freedom to structure deposit returns based on market conditions, which could be advantageous for their profitability.

 

Sunny Kumar, an analyst at Topline Research, estimates that the total deposits of listed banks stand at Rs27 trillion, with 53% (Rs14 trillion) of this amount coming from corporate deposits. Banks with a corporate deposit mix above 65%, such as the Bank of Punjab, will particularly benefit from this change.

 

Islamic Banking Institutions (IBIs) Circular

In addition to the changes for conventional banks, the SBP has also issued a circular for Islamic Banking Institutions (IBIs). The new instructions for IBIs state that they must pay profit on their rupee savings deposits (excluding those from financial institutions, public sector enterprises, and public limited companies) equivalent to at least 75% of the weighted average gross yield of all pools in an IBI.

 

The circular provides detailed guidelines on how the gross yield of each pool should be calculated, and it also allows IBIs to forgo a part of their Mudarib share (the share of profit earned by the managing partner) to meet market expectations in case of lower-than-expected returns.

 

These changes for IBIs will also come into effect on January 1, 2025.

 

Conclusion

With these new measures, the State Bank of Pakistan has provided more flexibility to conventional banks regarding corporate deposits while continuing to protect individual depositors with the MDR. This reform is expected to improve competition among banks, especially those with a higher corporate deposit mix, and may also have implications for the broader banking sector in Pakistan.

 
Tagged:

StateBank

BankingReform

MDR

CorporateDeposits

SBPPolicy
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