The State Bank of Pakistan (SBP) has introduced enhanced collateral and eligibility criteria for improved monetary policy lending operations effective July 2025.
In order to further strengthen risk mitigation measures for SBP’s Monetary Policy Lending Operations and Mudarabah Based Financing Facilities (OMOs and Standing Ceiling Facility), the following instructions are being issued:
A. Collateral Requirements:
- Based on duration and volatility estimates, SBP will apply the following haircuts on the market value of government securities (determined using the applicable benchmark i.e. PKRV or PKFRV or PKISRV) offered as collateral for availing financing under its Monetary Policy Lending Operations/Financing Facilities including OMO-Injections and Ceiling Facility:
| Sr. No. | Maturity (Residual) Buckets | Applicable Haircut (%) |
| 1 | Up to 3-months | 0.2% |
| 2 | > 3-months to ≤ 6-months | 0.4% |
| 3 | > 6-months to ≤ 9-months | 0.6% |
| 4 | > 9-months to ≤ 1-Year | 1.0% |
| 5 | > 1 Year to ≤ 3 Year | 2.0% |
| 6 | > 3 Year to ≤ 5 Year | 3.5% |
| 7 | > 5 Year to ≤ 7 Year | 5.0% |
| 8 | > 7 Year to ≤ 10 Year | 7.0% |
| 9 | >10 year | 10.0% |
2. Application of haircut on the market value of the security (market price) shall be as follows:
Post haircut Price = Market Price of the security*(1 – Applicable Haircut)
- Floating rate instruments (PIBs and GIS) will be subject to haircuts as follows:
- Floating Rate instruments with quarterly coupon/rental will be subject to a haircut of up to a 3-month maturity bucket
- Floating Rate instruments with semiannual coupon/rental will be subject to a haircut of a 3 to 6-month maturity bucket.
B. Counterparty Eligibility Criteria
SBP will apply the following criteria for the purpose of extending financing under its Monetary Policy Lending Operations / Financing Facilities (OMO-Injections and Ceiling Facility):
- Regulated Entity: The institution must be a regulated entity of SBP.
- Current Account with SBP-BSC: The institution must maintain a Current Account with SBP–BSC.
- Participant of PRISM: The institution shall be a part of Pakistan Real Time Interbank Settlement Mechanism (PRISM).
- Financial Soundness: Institutions compliant with all of the above requirements (1 to 3), will be classified into the following categories:
- “Regular Participants”: Institutions meeting the following requirements:
- Solvency Requirements: Minimum Capital Adequacy Requirement (MCR and CAR) and Leverage Ratio as prescribed by SBP
- Liquidity Requirements: Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) as prescribed by SBP
- “Watch list Participants”: Institutions that become non-compliant with aforementioned capital and liquidity requirements will be placed on a ‘watch list’ with the following conditions for participation in facilities:
- “Regular Participants”: Institutions meeting the following requirements:
| Non-Compliance with | Reporting Periodicity | Eligibility for Participation with Limitation* (Roll-over only) | Eligibility for Participation with Limitation* (Roll-over only) where breach is temporary |
| Capital Requirements | Quarterly | 2 months from reporting of non-compliance | 3 months grace period |
| Liquidity Requirements | Quarterly | 1 month from reporting of non-compliance | 3 months grace period |
*The outstanding amount shall be capped and no incremental financing shall be extended.
During this period for participation with limitation, SBP will assess whether the institution’s breach is temporary and resolvable depending upon the nature of the breach and the effectiveness of the recovery plan. In case the SBP determines that the breach is not temporary and resolvable, SBP will instantly suspend the facilities and advise the institution about its ineligibility.
c. Ineligible Institutions
Institutions falling under any of the following criteria will be ineligible for participation in Lending Operations/ Financing Facilities under OMOs/Ceiling:
- Institutions classified as ineligible based on the parameters given in para 4 (b) i.e. institutions that fail to restore liquidity and/or recapitalize within grace periods.
- An institution declared as a failed institution under the Deposit Protection Corporation Act 2016.
- An institution under Resolution or Liquidation.
- In an institution whose license has been canceled/revoked.
In order to provide adequate time for the market to adjust to the revised requirements, the above instructions will be applicable from 02nd July 2025. All other instructions on the subject shall remain unchanged.
