The Banking Companies (Amendment) Bill 2009 was passed by National Assembly (NA). Very important changes have been made and the public has the right to know what their elected representatives discussed. There was a time when newspapers used to publish the proceedings of the NA. It was better that the discussion in the NA should have been reported by the national press.
Sohail Sarfraz, your correspondent has rightly said that the existing law provides these powers in one form or another. The State Bank of Pakistan (SBP) should regulate the banking sector and not over-regulate. The amendments passed will not welcome new owners, specially international investors and major shareholders at present shall always be in fear as to which of their action may annoy the SBP.
In Section 14, the amendment is made that if any percentage of shareholding is detrimental to the interest of the banking company, the SBP may require such a member to transfer his holding, as directed by SBP to a fit and proper person. It is very surprising and strange that a shareholder shall be responsible for detrimental interest.
Normally the management of a company is responsible for doing anything wrong and the shareholders are affected, besides others. This is a very draconian amendment. It is like nationalization-cum-privatization. How will it be determined that holding is detrimental to the interest of a banking company? The term "any percentage" is too wide, it may be 0.5%, 5% or 7% etc and if it is detrimental, then such person should not hold even one share.
Then, what will be the criteria of a fit and proper person to whom shares will be transferred. There are so many "such", the important is "such price". SBP while exercising this power must fairly determine the price.
In Section 26A, it is stated that if the banking company has failed to carry out any directions, the SBP may impose conditions on accepting the deposits. The act of not carrying out any direction has been softened with the phrase (may impose). Here again, too, wide powers shall be with the SBP. On which violation, the conditions may be imposed is not clear. The SBP imposes a penalty on almost every violation, even on minor issues. Is it not enough that the condition of not accepting deposits be imposed?
Vide Section 42, a number of actions can be taken by the SBP on numerous acts of banking companies. It is not clear how a banking company can engage the director/chief executive, who is detrimental to the interest of banking company when these persons assume office with the clearance of the SBP and after passing a very strict test.
The appeal can be made before the Central Board of Directors of SBP. The right of appeal to higher authorities like the High Court or Supreme Court be also given. It shall be also be beneficial for the SBP, in case the Central Board of Directors gives a decision in favour of the banking company, then the SBP can also appeal with the higher authorities. Lastly, I wish the SBP uses these powers judiciously, professionally and uniformly.
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