05-07-2010, 01:08 PM
ISLAMABAD: Senate Standing Committee on Finance on Thursday approved Banking Companies (Amendment) Bill 2010 with certain changes to safeguard the interest of depositors as well as shareholders, equally.
The Senate body met in the Parliament House with Senator Ahmed Ali in the chair while Adviser to Prime Minister on Finance Dr Hafeez Shaikh and State Bank of Pakistan (SBP) Governor Salim Raza were present to respond to the queries of the members of the committee.
It was informed to the committee that SBP has proposed to the federal government to guarantee return of Rs 100,000 to the small bank depositors in case banking company becomes insolvent, as protection of small depositors.
As against the proposed amendment in Section 14 whereby SBP had sought to require such a member to reduce, divest, or transfer to fit and proper person, his shareholding in the banking company by such an amount with such a period and in such a manner and at such a price to be determined by SBP in its order.
The committee changed this proposal and it has been decided that SBP would identify the persons holding 5 percent or more shareholding in banking companies and not qualify on fit and proper criteria and would ask them to reduce, divest, or transfer to fit and proper person, his shareholding in the banking company but not at the price determined by the SBP and not to a person on SBP’s prescribed price.
The person would be allowed to reduce or divest his or her shareholding in the capital market and public auction, within three months in case of 5 percent shares and within 6 months in case 7 percent or more shareholding.
Those who have already obtained 5 percent or more shares through direct and indirect means in the banking companies but don’t qualify for fit and proper criteria would be given a deadline to disclose and get their shareholdings regularised. If someone would be willing to divest his or her 5 percent shareholding, he would be required to get formal approval from SBP and he or she would be allowed to reduce his or her shareholding through bilateral arrangement, in the meantime SBP would investigate the issue so that nothing is left to probe. SBP would be authorised to stop banking companies to payout dividends. The amount of dividends would remain the reserves of the bank and when the case is decided the banking company would be allowed to payout dividends.
SBP would bar the banking company from taking new deposits in case the management of bank refuses to inject fresh equity into the bank to improve its capital advocacy ratio. SBP would only take action against the banking company upon the failure of the management to submit action plan, non-implementation of action plan, not giving or not implementing commitment letter.
Upon depletion of the equity in the bank, the SBP would require the shareholders to raise the equity and in case of failure SBP would takeover the banking company. SBP would arrange new shareholders to invest in the banking company to rehabilitate it. Incase no one is ready to invest then the banking company would be liquidated. SBP would make sure that benefit of new investment made in the banking company by the SBP would not reach the old mismanagement or shareholders.
It was decided that appeal against the SBP order relating to the cancellation of banking company licence, liquidation of bank, takeover of the bank, change in the management of banks would be at the central board of the SBP as compared with high court at present.
According to the amendments made in the bill and those subsequently approved in the meeting were for raising the banks reserves with SBP would asking in writing with reasonable grounds for the increase in paid-up capital based on risk profile of the banking company.
The Senate body met in the Parliament House with Senator Ahmed Ali in the chair while Adviser to Prime Minister on Finance Dr Hafeez Shaikh and State Bank of Pakistan (SBP) Governor Salim Raza were present to respond to the queries of the members of the committee.
It was informed to the committee that SBP has proposed to the federal government to guarantee return of Rs 100,000 to the small bank depositors in case banking company becomes insolvent, as protection of small depositors.
As against the proposed amendment in Section 14 whereby SBP had sought to require such a member to reduce, divest, or transfer to fit and proper person, his shareholding in the banking company by such an amount with such a period and in such a manner and at such a price to be determined by SBP in its order.
The committee changed this proposal and it has been decided that SBP would identify the persons holding 5 percent or more shareholding in banking companies and not qualify on fit and proper criteria and would ask them to reduce, divest, or transfer to fit and proper person, his shareholding in the banking company but not at the price determined by the SBP and not to a person on SBP’s prescribed price.
The person would be allowed to reduce or divest his or her shareholding in the capital market and public auction, within three months in case of 5 percent shares and within 6 months in case 7 percent or more shareholding.
Those who have already obtained 5 percent or more shares through direct and indirect means in the banking companies but don’t qualify for fit and proper criteria would be given a deadline to disclose and get their shareholdings regularised. If someone would be willing to divest his or her 5 percent shareholding, he would be required to get formal approval from SBP and he or she would be allowed to reduce his or her shareholding through bilateral arrangement, in the meantime SBP would investigate the issue so that nothing is left to probe. SBP would be authorised to stop banking companies to payout dividends. The amount of dividends would remain the reserves of the bank and when the case is decided the banking company would be allowed to payout dividends.
SBP would bar the banking company from taking new deposits in case the management of bank refuses to inject fresh equity into the bank to improve its capital advocacy ratio. SBP would only take action against the banking company upon the failure of the management to submit action plan, non-implementation of action plan, not giving or not implementing commitment letter.
Upon depletion of the equity in the bank, the SBP would require the shareholders to raise the equity and in case of failure SBP would takeover the banking company. SBP would arrange new shareholders to invest in the banking company to rehabilitate it. Incase no one is ready to invest then the banking company would be liquidated. SBP would make sure that benefit of new investment made in the banking company by the SBP would not reach the old mismanagement or shareholders.
It was decided that appeal against the SBP order relating to the cancellation of banking company licence, liquidation of bank, takeover of the bank, change in the management of banks would be at the central board of the SBP as compared with high court at present.
According to the amendments made in the bill and those subsequently approved in the meeting were for raising the banks reserves with SBP would asking in writing with reasonable grounds for the increase in paid-up capital based on risk profile of the banking company.