MBF-705 LEGAL AND REGULATORY ASPECTS OF BANKING SUPERVISION

1. Session: TWENTY SIX MBF-705LEGAL AND REGULATORY ASPECTS OF BANKING SUPERVISION OSMAN BIN SAIF

2. Summary of last session • What is Deposit Insurance • State of Deposit Insurance in Pakistan • Draft Deposit Protection ACT of Pakistan

3. Agenda of this session • SECTION 7 • Banking Companies Ordinance, 1962

4. THE BANKING COMPANIES ORDINANCE, 1962ORDINANCE No. LVII OF 1962{7th June, 1962}

5. THE BANKING COMPANIES ORDINANCE, 1962 • An Ordinance to consolidate and amend the law relating to banking companies

6. PARTS AND SECTIONS

7. 1. Short title, extent and commencement.— • (1) This Ordinance may be called the Banking Companies Ordinance, 1962. • (2) It extends to the whole of Pakistan. • (3) It shall come into force at once.

8. 2. Application of other laws not barred.- The provisions of this Ordinance shall be in addition to, and not, save as hereinafter expressly • provided, in derogation of, the Companies Ordinance, 1984 (XLVII of 1984), • and any other law for the time being in force.

9. Part IIBUSINESS OF BANKING COMPANIES

10. 7. Form of business in which banking companies may engage.— (1) In addition to the business of banking, a banking company may engage in any one or more of the following forms of business, namely:- • (a) The borrowing, raising, or taking up of money; the lending or advancing of money either upon or without security;

11. 7. Form of business in which banking companies may engage. (Contd.) • the drawing, making, accepting, discounting, buying, selling, collecting and dealing in bills of exchange, hundies, promissory notes, coupons, drafts,

12. 7. Form of business in which banking companies may engage. (Contd.) • the buying and selling of foreign exchange including foreign bank notes; the acquiring, holding, issuing on commission, underwriting and dealing in stock, funds, shares, debentures, debenture stock, bonds,

13. 7. Form of business in which banking companies may engage. (Contd.) • obligations, securities (participation term certificates, term finance certificates, musharikacertificates, modarabacertificates and such other instruments as may be approved by the State Bank)

14. 7. Form of business in which banking companies may engage. (Contd.) • (b) acting agents for any Government or local authority or any other person or persons; the carrying on of agency business of any description including • the clearing and forwarding of goods, • giving of receipts and discharges and • otherwise acting as an attorney on behalf of customers, but excluding the business of a managing agent or treasurer of a company;

15. 7. Form of business in which banking companies may engage. (Contd.) • (c) contracting for public and private loans and negotiating and issuing the same;

16. 7. Form of business in which banking companies may engage. (Contd.) • (d) the effecting, insuring, guaranteeing, underwriting, participating in managing and carrying out of any issue public or private, Government, municipal or other loans or of shares, stock debentures.

17. 7. Form of business in which banking companies may engage. (Contd.) • (e) carrying on and transacting every kind of guarantee and indemnity business;

18. 7. Form of business in which banking companies may engage. (Contd.) • (f) managing, selling and realising any property which may come into the possession of the company in satisfaction or part satisfaction of any of its claims;

19. 7. Form of business in which banking companies may engage. (Contd.) • (k) the acquisition, construction, maintenance and alteration of any building or works necessary or convenient for the purpose of the company;

20. 7. Form of business in which banking companies may engage. (Contd.) • (n) doing all such other things as are incidental or conducive to the promotion or advancement of the business of the company;

21. 7. Form of business in which banking companies may engage. (Contd.) • (o) any other form of business which the State Bank by circular, specify as a form of business in which it is lawful for a banking company to engage.

22. 9. Prohibition of trading.— • Except as authorised under section 7, no banking company shall directly or indirectly deal in the buying or selling or bartering of goods or engage in any trade or buy, sell or barter goods for others, otherwise than in connection with bills of exchange received for collection or negotiation.

23. 13. Requirement as to minimum paid-up capital and reserves.— • (1)Subject to sub-section • (2) no banking company shall— • (a) commence business unless it has a minimum paid-up capital as may be determined by the State Bank; or

24. 13. Requirement as to minimum paid-up capital and reserves (Contd.) • (b) carry on business unless the aggregate of its capital and unencumbered general reserves is of such minimum value within such period as may be determined and notified by the State Bank from time to time for banking companies in general or for a banking company in particular.

25. 15. Election of new directors.— • (1) The State Bank may, by order, require any banking company to call a general meeting of the shareholders of the company within such time, not less than two months from the date of the order, as may be specified therein or within such further time as the State Bank may allow in this behalf,

26. 15. Election of new directors(Contd.) • to elect in accordance with the voting rights permissible under this Ordinance fresh directors, and the banking company shall be bound to comply with the order.

27. 21. Reserve Fund.— • (1) Every banking company incorporated in Pakistan shall create a reserve fund.

28. 22. Cash Reserve.— • Every banking company, not being a schedule bank, shall maintain by way of cash reserve in cash with itself, or in current account opened with the State Bank or its agent or partly in cash with itself and partly in such account or accounts a sum equivalent to at least two per cent of its time liabilities in Pakistan and five per cent of its demand liabilities in Pakistan

29. 22. Cash Reserve (Contd.) • and shall submit to the State Bank before the fifteenth day of every month a return showing the amount so held on Thursday of each week of the preceding month with particulars of its time and demand liabilities in Pakistan on each such Thursday or if any such Thursday is a public holiday under the Negotiable Instruments Act, 1881 (XXVI of 1881), at the close of business on the preceding working day.

30. 25AA. Preparation of special reports.— • The State Bank shall prepare, and submit to the Federal Government, a special report every year on cases of • write off of loans, • mark-up and other dues, or • financial relief through rescheduling and restructuring of loans and • subsidisedloans provided by the banking companies

31. 27. Licensing of banking companies.— • (1) No individual or association or body of individuals, not being a company, shall carry on banking business in Pakistan and, save as hereinafter provided, no company shall carry on banking business in Pakistan unless it holds a licence issued in that behalf by the State Bank; and any such licence may be issued subject to such conditions as the State Bank may think fit to impose.

32. 33. Power to publish information.— • The State Bank, if it considers it in the public interest so to do, may publish any information obtained by it under this Ordinance in such consolidated form as it thinks fit.

33. 36. Submission of returns.— • The accounts and balance-sheet referred to in section 34 together with the auditor’s report as passed in the Annual General Meeting shall be published in the prescribed manner, and three copies thereof shall be furnished as returns to the State Bank within three months of the close of the period to which they relate:

34. 37. Copies of Balance Sheet and Accounts to be sent to Registrar.— • Where a banking company in any year furnishes its balance sheet and accounts in accordance with the provisions of section 36 it may, or when it is a private company, shall, at the same time send to the registrar three copies of such balance sheet and accounts and of the auditor’s report.

35. 40 Inspection.— • (1) Notwithstanding anything to the contrary contained in section 138 of the Companies Ordinance, 1984 (XLVII of 1984), the State Bank may, at any time, and, on being directed so to do by the Federal Government, shall, inspect any banking company and its books and accounts.

36. 40 Inspection (Contd.) • (2) The inspection shall be carried out by such officer of the State Bank as the State Bank may direct.

37. 41. Power of the State Bank to give directions.— • 1) Where the State Bank is satisfied that— • (a) in the public interest; or • (b) to prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to the interests of the banking company; or

38. 41. Power of the State Bank to give directions (Contd.) • (c) to secure the proper management of any banking company generally; • it is necessary to issue directions to banking companies generally or to any banking company in particular, • it may, from time to time, issue such directions as it deems fit, and • the banking companies or the banking company, as the case may be, shall be bound to comply with such directions.

39. 41B. Power of the State Bank to supersede Board of Directors of banking company.— • 1) where the State Bank is satisfied that – • (a) the association of the Board of Directors (by whatever name called) of a banking company is or is likely to be detrimental to the interests of the banking company or its depositors or otherwise undesirable; or

40. 42. Further powers and functions of the State Bank.— • (1) The State Bank may— • (a) caution or prohibit banking companies generally or any banking company in particular against entering into any particular transaction or class of transactions and generally give advice to any banking company;

41. 42. Further powers and functions of the State Bank (Contd.) • (b) require banking companies generally, or any banking company in particular, to refrain from taking such actions as it may specify in relation to any matter relating to the business of such banking company or companies, or to take such action in relation thereto as the State Bank thinks fit;

42. 42. Further powers and functions of the State Bank (Contd.) • (i) require the banking company to call a meeting of its directors for the purpose of considering any matter relating to or arising out of the affairs of the banking company, or require an officer of the banking company to discuss any such matter with an officer of the State Bank;

43. 42. Further powers and functions of the State Bank (Contd.) • (ii) depute one or more of its officers to watch the proceedings at any meeting of the Board of Directors of the banking company or of any committee or of any other body constituted by it.

44. 42. Further powers and functions of the State Bank (Contd.) • (iv) appoint one or more of its officers to observe the manner in which the affairs of the banking company or of its offices or branches are being conducted and make a report thereon;

45. 42. Further powers and functions of the State Bank (Contd.) • (2) The State Bank shall make an annual report to the Federal Government on the trend and progress of banking in the country, • including in such report its suggestions if any, for the strengthening of banking business throughout the country.

46. Summary of this sessionBanking Companies Ordinance, 1962

47. THANK YOU