Lecture Legal and regulatory aspects of banking supervision – Chapter 26

The following will be discussed in this chapter: Banking companies ordinance, 1962; what is deposit insurance, state of deposit insurance in Pakistan, draft deposit protection ACT of Pakistan.

MBF-705 LEGAL AND REGULATORY ASPECTS OF BANKING

SUPERVISION

OSMAN BIN SAIF

Session: TWENTY SIX

Summary of last session

• What is Deposit Insurance

• State of Deposit Insurance in Pakistan

• Draft Deposit Protection ACT of Pakistan

Agenda of this session

– Banking Companies Ordinance, 1962

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THE BANKING COMPANIES

ORDINANCE, 1962 ORDINANCE No LVII OF 1962

{7th June, 1962}

THE BANKING COMPANIES

ORDINANCE, 1962

• An Ordinance to consolidate and

amend the law relating to banking

companies

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PARTS AND SECTIONS

1 Short title, extent and

commencement.—

– (1) This Ordinance may be called the Banking

Companies Ordinance, 1962.

– (2) It extends to the whole of Pakistan.

– (3) It shall come into force at once.

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2 Application of other laws not

Part II BUSINESS OF BANKING

COMPANIES

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7 Form of business in which

banking companies may

engage.—

(1) In addition to the business of banking, a banking company may engage in any one or more of the following forms of business,

namely:-– (a) The borrowing, raising, or taking up of

money; the lending or advancing of money

either upon or without security;

7 Form of business in which

banking companies may

engage (Contd.)

– the drawing, making, accepting, discounting,

buying, selling, collecting and dealing in bills of exchange, hundies, promissory notes, coupons, drafts,

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7 Form of business in which

banking companies may

bonds,

7 Form of business in which

banking companies may

engage (Contd.)

• obligations, securities (participation term certificates, term finance certificates,

musharika certificates, modaraba

certificates and such other instruments as may be approved by the State Bank)

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7 Form of business in which

banking companies may

engage (Contd.)

• (b) acting agents for any Government or local authority or any other person or

persons; the carrying on of agency

business of any description including

– the clearing and forwarding of goods,

– giving of receipts and discharges and

– otherwise acting as an attorney on behalf of customers, but excluding the business of a managing agent or treasurer of a company;

7 Form of business in which

banking companies may

engage (Contd.)

• (c) contracting for public and private loans and negotiating and issuing the same;

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7 Form of business in which

banking companies may

engage (Contd.)

• (d) the effecting, insuring, guaranteeing, underwriting, participating in managing and carrying out of any issue public or private, Government, municipal or other loans or of shares, stock debentures

7 Form of business in which

banking companies may

engage (Contd.)

• (e) carrying on and transacting every kind

of guarantee and indemnity business;

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7 Form of business in which

banking companies may

engage (Contd.)

• (f) managing, selling and realising any

property which may come into the

possession of the company in satisfaction

or part satisfaction of any of its claims;

7 Form of business in which

banking companies may

engage (Contd.)

• (k) the acquisition, construction,

maintenance and alteration of any building

or works necessary or convenient for the purpose of the company;

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7 Form of business in which

banking companies may

engage (Contd.)

• (n) doing all such other things as are

incidental or conducive to the promotion or advancement of the business of the

company;

7 Form of business in which

banking companies may

engage (Contd.)

• (o) any other form of business which the

State Bank by circular, specify as a form of business in which it is lawful for a banking company to engage

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or buy, sell or barter goods for others,

otherwise than in connection with bills of exchange received for collection or

negotiation

13 Requirement as to minimum paid-up capital and reserves.—

• (1)Subject to sub-section

• (2) no banking company shall—

– (a) commence business unless it has a

minimum paid-up capital as may be

determined by the State Bank; or

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13 Requirement as to minimum

paid-up capital and reserves

(Contd.)

• (b) carry on business unless the

aggregate of its capital and

unencumbered general reserves is of

such minimum value within such period as may be determined and notified by the

State Bank from time to time for banking

companies in general or for a banking

company in particular

15 Election of new directors.—

• (1) The State Bank may, by order, require any banking company to call a general

meeting of the shareholders of the

company within such time, not less than two months from the date of the order, as may be specified therein or within such

further time as the State Bank may allow

in this behalf,

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15 Election of new directors

(Contd.)

• to elect in accordance with the voting

rights permissible under this Ordinance fresh directors, and the banking company shall be bound to comply with the order

21 Reserve Fund.—

• (1) Every banking company incorporated

in Pakistan shall create a reserve fund

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22 Cash Reserve.—

• Every banking company, not being a

schedule bank, shall maintain by way of

cash reserve in cash with itself, or in

current account opened with the State

Bank or its agent or partly in cash with

itself and partly in such account or

accounts a sum equivalent to at least two per cent of its time liabilities in Pakistan

and five per cent of its demand liabilities in Pakistan

22 Cash Reserve (Contd.)

• and shall submit to the State Bank before the fifteenth day of every month a return showing the amount so held on Thursday

of each week of the preceding month with particulars of its time and demand

liabilities in Pakistan on each such

Thursday or if any such Thursday is a

public holiday under the Negotiable

Instruments Act, 1881 (XXVI of 1881), at the close of business on the preceding

25AA Preparation of special

reports.—

• The State Bank shall prepare, and submit

to the Federal Government, a special

report every year on cases of

– write off of loans,

– mark-up and other dues, or

– financial relief through rescheduling and

restructuring of loans and

– subsidised loans provided by the banking

companies

27 Licensing of banking

companies.—

• (1) No individual or association or body of individuals, not being a company, shall

carry on banking business in Pakistan

and, save as hereinafter provided, no

company shall carry on banking business

in Pakistan unless it holds a licence issued

in that behalf by the State Bank; and any such licence may be issued subject to

such conditions as the State Bank may

think fit to impose

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33 Power to publish

information.—

• The State Bank, if it considers it in the

public interest so to do, may publish any information obtained by it under this

Ordinance in such consolidated form as it thinks fit

36 Submission of returns.—

• The accounts and balance-sheet referred

to in section 34 together with the auditor’s report as passed in the Annual General

Meeting shall be published in the

prescribed manner, and three copies

thereof shall be furnished as returns to the State Bank within three months of the

close of the period to which they relate:

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37 Copies of Balance Sheet

and Accounts to be sent to

Registrar.—

• Where a banking company in any year

furnishes its balance sheet and accounts

in accordance with the provisions of

section 36 it may, or when it is a private company, shall, at the same time send to the registrar three copies of such balance sheet and accounts and of the auditor’s report

40 Inspection.—

• (1) Notwithstanding anything to the

contrary contained in section 138 of the Companies Ordinance, 1984 (XLVII of 1984), the State Bank may, at any time, and, on being directed so to do by the Federal Government, shall, inspect any banking company and its books and

accounts

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40 Inspection (Contd.)

• (2) The inspection shall be carried out by such officer of the State Bank as the State Bank may direct

41 Power of the State Bank to

give directions.—

• 1) Where the State Bank is satisfied that—

– (a) in the public interest; or

– (b) to prevent the affairs of any banking

company being conducted in a manner

detrimental to the interests of the depositors

or in a manner prejudicial to the interests of the banking company; or

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41 Power of the State Bank to

give directions (Contd.)

• (c) to secure the proper management of any

banking company generally;

companies generally or to any banking company in particular,

deems fit, and

the case may be, shall be bound to comply with such directions.

41B Power of the State Bank to supersede Board of Directors of banking company.—

• 1) where the State Bank is satisfied that –

– (a) the association of the Board of Directors (by whatever name called) of a banking

company is or is likely to be detrimental to the interests of the banking company or its

depositors or otherwise undesirable; or

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42 Further powers and functions of the State Bank.—

• (1) The State Bank may—

– (a) caution or prohibit banking companies

generally or any banking company in

particular against entering into any particular transaction or class of transactions and

generally give advice to any banking

company;

42 Further powers and functions of the State Bank

(Contd.)

• (b) require banking companies generally,

or any banking company in particular, to refrain from taking such actions as it may specify in relation to any matter relating to the business of such banking company or companies, or to take such action in

relation thereto as the State Bank thinks fit;

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42 Further powers and functions of the State Bank

(Contd.)

• (i) require the banking company to call a meeting of its directors for the purpose of considering any matter relating to or

arising out of the affairs of the banking

company, or require an officer of the

banking company to discuss any such

matter with an officer of the State Bank;

42 Further powers and functions of the State Bank

(Contd.)

• (ii) depute one or more of its officers to watch the proceedings at any meeting of the Board of Directors of the banking

company or of any committee or of any other body constituted by it

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42 Further powers and functions of the State Bank

(Contd.)

• (iv) appoint one or more of its officers to observe the manner in which the affairs of the banking company or of its offices or

branches are being conducted and make

a report thereon;

42 Further powers and functions of the State Bank

(Contd.)

• (2) The State Bank shall make an annual report to the Federal Government on the trend and progress of banking in the

Summary of this session Banking Companies Ordinance,

1962

THANK YOU

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