SBP speeds up Islamic banking transition

June 16, 2026 (MLN): The State Bank of Pakistan (SBP) has revised its criteria for the conversion of conventional banking branches into Islamic banking branches, streamlining the process to facilitate faster industry-wide transition.

Issued vide IFPD Circular Letter No. 03 of 2026 dated June 16, 2026, and addressed to all conventional banks having Islamic banking branches and microfinance banks having Islamic operations, the updated framework introduces two key amendments to the existing criteria laid down under IFPD Circular No. 5 of 2024.

The time period required for informing the general public and account holders about an upcoming branch conversion has been reduced from three and a half months to two months.

Additionally, the time interval between the issuance of two notices for conversion of current accounts on a deemed acceptance basis has been shortened from 30 days to 15 days.

Under the revised framework, all conventional banks with existing Islamic operations or those intending to launch Islamic banking remain eligible to apply for branch conversion.

No licensing fee is applicable on such conversions. Banks are required to submit their Annual Branch Conversion Plan to the Banking Policy & Regulations Department with a copy to the Islamic Finance Policy Department by October 31 of each preceding calendar year, though case-to-case conversion requests may also be submitted at any time.

For customer consent, banks must approach account holders through letters, emails, SMS, telephone calls, or digital channels, providing at least 30 days for submission of consent or dissent.

In cases where no response is received, current accounts of individuals may be converted on a deemed acceptance basis subject to Shariah Board approval and legal clearance while saving and fixed accounts with no response shall either be parked in a virtual conventional cost centre or transferred to the nearest conventional branch.

To further facilitate the transition, banks are permitted to establish virtual conventional cost centres on a temporary basis for up to one year from the date of the Islamic banking branch licence, allowing unconvertible deposits and asset portfolios to be managed separately.

No new business, enhancement of existing business, or rollover of conventional assets is permissible through these virtual cost centres.

The framework also specifies that no account of a non-Muslim customer shall be converted from conventional to Islamic without explicit consent, and accounts under litigation, those of deceased persons, disputed accounts, and dormant or inactive accounts are excluded from deemed acceptance conversion.

The changes take effect immediately, with all other existing instructions on the subject remaining unchanged.

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