The State Bank of Pakistan (SBP) Monday notified enactment of three Acts that are Corporate Restructuring Companies Act, 2016, the Depositors Protection Corporation Act, 2016 and the Financial Institutions (Recovery of Finances) (Amendment) Act, 2016. Under the Depositors Protection Corporation Act No XXXVII of 2016, a Depositors Protection Corporation as a subsidiary of the State Bank will be set up for protection of small depositors in order to ensure financial stability and maintain public trust on the financial system.
The main objective of the DPC is to compensate depositors for losses incurred by them to the extent of protected deposits in the event of failure of a member institution. All banks scheduled under sub-section (2) of section 37 of State Bank Act 1956, unless exempted or excluded by the board, will be compulsory member institution of the corporation and liable to pay the prescribed premium.
The DPC, under the overall supervision and control of board will collect contribution from members, acquire, hold, manage and invest resources of the corporation. The corporation will guarantee full payment of funds held in depositors'' account with member institutions, regardless of the member and size of the deposits, up to an amount prescribed by the corporation from time to time.
Shariah-complaint mechanism of deposit protection in respect of Islamic Banking Institutions shall be provided in the prescribed manner which shall be approved by the State Bank''s Shariah Board. The authorized share capital of the corporation will be Rs one billion or such other amount as the State Bank may determine by order and shall be divided into shares of Rs one million each. However, no dividend will be payable to the shareholders of the corporation.
According to the Act, the corporation will be administered by a seven-member board of directors. Deputy Governor State Bank of Pakistan will be the chairman of the board. The State Bank will appoint a professional person as Managing Director of the corporation for a term of five years and will be eligible for re-appointment for another term of five years on the basis of his performance.
Similarly, four board directors of the DPC will be appointed by the federal government in consultation with the SBP, while one director will be nominated by the ministry of finance. As small depositors have major shares in the overall deposits of the banking industry, the SBP a few years back had taken step to protect their interests. In addition, the enactment of the Corporate Restructuring Companies Act, 2016 (Act No XXXII of 2016) provides for the establishment, licensing and regulation of corporate restructuring companies. The Financial Institutions (Recovery of Finances) (Amendment) Act, 2016 (Act No XXXVIII of 2016) is relating to the recovery of loans.