The government has decided to amend Banking Companies Ordinance (BCO) 1962, enhancing penalties for violation of regulations, besides allowing inclusion of perpetual non-cumulative preference shares in the capital structure to the company, sources in the Finance Ministry told Business Recorder. The summary proposed by the State Bank of Pakistan (SBP) would be discussed in the Federal Cabinet meeting to be chaired by Prime Minister Shaukat Aziz here on Wednesday.
The purpose of this proposal is to further strengthen the banking sector, which had already entered a competitive environment with an expanding market share of private and foreign banks.
THE SALIENT FEATURES OF THESE AMENDMENTS ARE AS FOLLOWS: Amendment in SECTION 14: The BCO restricts capital of banking companies to ordinary shares, while the Companies Ordinance 1984 permits other kinds of capital and classes as well to be counted towards tier-1 capital. Need has been felt to allow perpetual non-cumulative preference shares in the capital of the banking companies.
There is no restriction in the Companies Ordinance 1984 on issuance of preference shares, while the Basle Capital Accord of 1988 permits non-cumulative perpetual shares to be accounted towards tier-1 capital.
The proposed amendment will permit the banking companies to include perpetual non-cumulative preference shares in their capital structure, which is likely to support growth in the lending operations by providing additional cushion.
SECTION 19: The addition of sub-section (3) in Section 19 will enable the banking companies to pay dividend out of profits if they can meet the minimum capital requirement and capital adequacy ratio and also amortise due portion of capitalised expenses on yearly basis.
SECTION 48(4): The amendment has been proposed to enable the foreign banks branches to merge under the said section, even if it is not possible to convene meeting of their shareholders provided the SBP accepts the merger proposal.
SECTION 82B: The amendment has been proposed to provide more flexibility for determining the salary and other benefits of the banking ombudsman keeping in view the experience and qualification of the person, empowering the banking ombudsman to effectively investigate the complaint/matter and to ensure that the Banking Mohtasib do not entertain any complaint or application which had already been disposed of by the State Bank of Pakistan or any court in Pakistan.
SECTION 82D: The amendment has been proposed to reduce the time from three months to 45 days to respond to the aggrieved person by the Banking Mohtasib with the objective to expedite and facilitate in redressing the complaints of the customers of banks.
SECTION 82E: The amendment has been proposed to specify time period for making appeal against the order of the Banking Mohtasib as no time period was provided earlier. Further amendment has been proposed to make the financial institutions responsible to implement the decisions of the Banking Mohtasib within 40 days, which in turn would enhance the effectiveness of the office of the Mohtasib.
AMENDMENT IN SECTION 83: The scale of penalties prescribed in the Banking Companies Ordinance has not been proved effective in cases where the violation is quite serious. In order to deal with such cases, the amendments have been proposed to enhance the scale of penalties for violations of provisions of the Banking Companies Ordinance keeping in view the nature and intensity of such violation.
Besides, if a banking company fails or refuses to pay the fines or penalties imposed by the State Bank of Pakistan under this bill, the State Bank may, without notice to the banking company, debit the amount of default to any account of the banking company held with the State Bank.
INSERTION OF NEW SECTIONS 93D & 93DD: The insertion of these provisions would provide protection to banks and employees of banks against any law suit or other adverse actions as a result of exchanging information about the state of affairs of accounts of customers or any transactions having suspicion of money laundering or terrorist financing.
Besides, adequate deterrence has been provided in the bill to deter leakage of any information or tipping off to customers or to any other person about information communicated to the State Bank on the suspicion of money laundering or terrorist financing.
These amendments are necessary in carrying out future directions of the financial sector reforms. It will go a long way in achieving better supervision and regulations of financial market and institutions and would produce self-sustained and commercially viable financial institutions in future.