ISLAMABAD: The State Bank of Pakistan (SBP) and other commercial banks on Saturday finally withdrew their appeals from the Supreme Court, challenging the Federal Shariat Court`s (FSC) directions to the government to make the country`s entire banking system completely Shariacompliant by Dec 2027.

The appeals were taken back in line with a Nov 9 announcement by Finance Minister Ishaq Dar that SBP and the National Bank of Pakistan (NBP) would be withdrawing appeals against the April 28 FSC verdict, which had given the government a five-year deadline to eliminate Riba (interestbased) banking from the country.

Announce d in April by a threejudge FSC bench consisting of Chief Justice Muhammad Noor Meskanzai, Justice Dr SyedMuhammad Anwer and Justice Khadim Hussain M Shailch, the verdict directed the federal as well as the provincial governments to complete necessary legislative amendments to the relevant laws and bring them into conformity with the injunctions of Islam within five years. The FSC also ordered the government to adopt Sharia-compliant modes while borrowing from domestic or foreign sources in the future.

On Saturday, the banking regulator as well as commercial banks, made an application under Order 33 Rule 6 of the Supreme Court Rules 1980 to withdraw appeals pending adjudication before the apex court in which no date of hearing has been fixed so far.

In its appeal, the SBP had contended that being the custodian and regulator of the financial and monetary framework of Pakistan, the bank was deeply committedto ensuring compliance with the injunctions of Islam while protecting the stability and security of Pakistan`s financial sector that functions as part of the global financial system.

However, while Islamic modes of finance are a growing area of interest for foreign providers of finance, the adoption of particular modes of finance with respect to any particular advance is not in the hands of the state of Pakistan and its various instrumentalities.

Funding arrangements with international providers of finance are a matter of negotiations carried out by the designated officials/authorities of the state of Pakistan. The form and the terms of such arrangements are not dictated by any law in force in Pakistan but are a result of the best outcome that the state can achieve in the arena of international finance, the petition had argued.It contended that the prescribed time frame to transform the banking system was not related to any particular law.

Even otherwise, a mass-scale conversion of the banking system will require infrastructural investment and changes at a mega scale (at least five times more within the next five years as comparedtothecurrentlevelthathas been achieved in more than 20 years).

Accordingly, transactions costs, documentation requirements and dearth of risl( management solutions will put additional pressure on the conversion process. Abruptness in implementation will create uncertainty in the banking sector, which may bring instability to the whole economy` The appeal had also pleaded before the apex court that the FSC`s judgement be modified so as toaddress theissues.

The SBP also placed `StrategicPlan for Islamic Banking Industry 2021-25` for perusal of the SC. `A gradualapproachforthe transformation of banking system into Sharia-compliant banking was adopted at the start of this millennium, wherein both the Islamic and conventional banks were allowed to operate simultaneously in the country,` the SBP recalled.

According to the SBP, Islamic banks now account for 19.4 per cent of the country`s overall banking system in terms of assets, while in terms of deposits the share is 20pc (as of March 31, 2022). Currently, 22 Islamic Banking Institutions (IBIs)five full-fledged Islamic banks and 17 conventional banks having standalone Islamic banking branches with a network of 3,983 branches along with 1,418 Islamic banking counters at conventional branches are operational across the country.