The Securities and Exchange Commission of Pakistan (SECP) has restricted the Crescent Standard Investment Bank Limited (CSIBL) from raising deposits "in violation of Non-Banking Finance Companies (NBFC) rules".
The SECP, having satisfied that in the public interest, it was necessary and expedient to issue certain directions to CSIBL, has in exercise of the power of the Commission under section 282D of the Companies Ordinance, 1984, directed that:
-- CSIBL shall immediately cease issuance of any new certificate of deposits (CODs).
-- CSIBL shall not rollover the existing CODs of individual depositors upon maturity.
-- The existing CODs of individual depositors shall be encashed as and when they become due.
In a related development, the SECP has initiated proceedings against the partners of Syed Hussain & Co, chartered accountants, who were the statutory auditors of CSIBL for the period ended December 31, 2004.
A complaint has also been filed with the Institute of Chartered Accountants of Pakistan (ICAP) against them.
The SECP, in a letter sent to CSIBL Chief Executive Officer (CEO) Anjum M. Saleem on June 12, said that while the credit rating of CSIBL had been suspended by JCR-VIS, the credit rating company, on April 18, it was observed that CSIBL continued to raise deposits in violation of Rule 12 of the NBFC Rules. This resulted in the issuance of above directions. These shall remain in place until modified or cancelled by the Commission, and any failure to comply with the directions "shall be dealt with in accordance with the relevant provisions of the Companies Ordinance, 1984," the letter said.
The SECP letter made reference to Rule 12(1)(c) of the Non-Banking Finance Companies (Establishment & Regulation) Rules, 2003 (NBFC Rules), which stipulates that the NBFC may seek permission from the SECP to issue Certificates of Investment/Certificates of Deposit (COIs/CODs). But only in case it has obtained a minimum investment grade credit rating from a credit rating agency, registered with the SECP, and updates such credit rating at least once every year during the currency of the issue.
The Commission vide its circular No 14 of 2003 of June 11, 2003, had also clarified that all the conditions laid down in Rule 12 of the NBFC Rules are applicable to NBFCs which are raising deposits in the form of COIs/CODs based on valid permission granted under SRO 585(1)/87 of July 13, 1987, the Leasing Companies (Establishment & Regulation) Rules, 2000 or SRO 1356(1)/90 of December 24, 1990, as applicable.
In view of the above, the NBFCs, which are mobilising deposits through the issuance of COIs/CODs, are required to maintain a minimum investment grade credit rating to ensure compliance with Rule 12(1)(c) of the NBFC Rules.
The SECP, in a separate letter sent on May 31 to Chief Operations Manager of Karachi Stock Exchange (KSE) Haroon Askar, informed him that the Commission had also initiated proceedings against the ex-Chief Executive as well as the directors of CSIBL.
The SECP, however, regretted that since these proceedings were being finalised, "your request to share the statement given by the ex-CEO in reply to the show-cause notice, issued by SECP, "cannot be entertained."
A copy of show -cause notice was attached with the letter for reference along with a copy of the SECP''s letter to CSBIL Chairman for sharing the report of A.F.Ferguson & Co with the concerned authorities.