SBP rules, regulations: Government all set to incorporate changes

The government is all set to incorporate changes to State Bank of Pakistan (SBP) rules and regulations through the SBP (amendment) Bill 2020 meant to ensure the autonomy of Central Bank to promote collegial decision making in the bank to address the conflict of interest issues, well informed sources told Business Recorder.
According to the proposed amendments, the authorized capital of the Bank shall be of Rs 500 billion divided into five billion shares of one hundred rupees each. The authorized capital may be increased by the resolution of the BoD subject to the consent of the federal government.
The proposed amendment says that the bank "shall" not extend any direct credits to or guarantee any obligations of the federal government, any sub -national government, any government owned entity. The prohibition laid down in sub-section(1) "shall" not apply to government owned or publicly-owned banks and other regulated entities, which shall be given the same treatment as privately owned banks. The bank shall purchase securities issued by the federal government, any sub-national governments, any government-owned entity or any other public entity on the primary market. The bank may purchase such securities in the secondary market.
The bank "shall" not guarantee any loan, advance or investment entered into by the federal government, any sub-national governments, any government-owned entity or any other public entity provided that the existing outstanding debt owed to the bank in the form of loans, advances or government securities purchased on the primary market, at the time of the enactment of the SBP( amendment) Act 2020 shall be retired in accordance with the terms and conditions under such outstanding debts were extended.
The guarantees issued by the bank to secure the obligations of the federal government or sub-national governments outstanding as the date of the enactment of the SBP amendment Act 2020 "shall" not be increased but can be rolled-over in accordance with the terms and conditions under which such outstanding guarantee were issued.
The amount of overdraft outstanding against Pakistan Railways shall be converted into long-term debt with duration of eight years and remunerated at market interest rates.
The bank will provide the refinance facility exclusively to the financial institutions falling under the supervisory jurisdiction of the bank backed by such collateral and on such terms and conditions as may be determined by the bank. This refinance shall not be provided to any person other than a financial institution. The bank "shall" implement the refinance facility exclusively in pursuit of its mandate, without compromising its primary objective of price stability. The bank "shall" not use the financing facility to directly or indirectly provide privileged access to funding to any financial institutions or risk issuance of any specific sector.
The paid-up capital of the bank shall be Rs 100 billion divided into one billion shares of one hundred rupees each, which shall be made up through issuance of bonus shares by capitalizing of profits or general reserve or through subscription of shares in cash by the federal government. The capital "shall be full paid up and held exclusively by the federal government shall not be transferable to any other entity".
The BoD with the advice of the external auditors of the bank "shall" assess the situation and prepare a report on the causes and extent of the shortfall within a period not exceeding thirty calendar days. In the event the BoD approves the report, the bank "shall" request the federal government for a capital contribution to remedy the deficit with a view to restoring the capital to the level of prescribed paid-up capital under section 4 and upon receipt of this request, the federal government shall within a period not exceeding thirty calendar days, transfer to the bank the necessary amount in cash or in negotiable debt instruments with a specified maturity issued at prevailing market-related interest rates.
The primary objective of the bank "shall" be to achieve and maintain to domestic price stability. Without prejudice to the bank's primary objective, the bank "shall" contribute to the stability of the financial stability. The bank "shall" support the government's general economic policies with a view to contributing to fostering the development and fuller utilization of Pakistan's productive resources.
The functions of the bank in pursuit of the objectives set forth in section 4B and as further described in this Act, "shall" be to;(i) determine and implement monetary policy;(ii) formulate and implement the exchange rate policy;(iii) carry out and disseminate research relevant to bank's objectives and functions;(iv) hold and manage all international reserves of Pakistan at levels that support the objective of the bank;(v) issue and manage the currency of Pakistan including regulating their denominations.