Banking companies: Senate body urged to rationalise BCO amendment bill

[Lahore_Real_Estate]

KARACHI (May 08 2010): The proposed Banking Companies (Amend-ment) Bill 2010, if approved in its present form, will undermine the right of ownership of sponsors, a right which is guaranteed under the constitution. Bankers and members of business community have urged the members and chairman of the Senate standing committee on finance and revenue to rationalise the bill, and expressed deep concern over its controversial clauses which give unrestricted powers to the State Bank of Pakistan (SBP).

According to usually reliable sources, Pakistan Business Council (PBC) has written a letter to the chairman of the standing committee, Senator Ahmed Ali, conveying serious reservations about Section 14, Section 26A, Section 41B and Section 42 of the Bill. PBC is of the view, that if the bill is approved in its present form, it will undermine the right of ownership of sponsors, a right which is guaranteed under the constitution. Such 'draconian' powers are against the constitution, it said.

PBC is a think tank-cum-business policy advocacy platform, currently containing 26 members who are amongst the largest companies/groups including multi-national companies (MNCs) in Pakistan.

According to sources, the members have termed the banking law a total devastation for the whole banking industry which is already under tremendous pressure and is crippling due to economic downturn. Members were surprised that all over the world, countries are struggling to strengthen banking sector while in Pakistan a bill is being considered to restrict the remarkable growth of local banking industry in the face of world recession.

PBC members have also expressed that some of the amendments are violations of the elementary rights provided in the constitution. The powers predetermined by the proposed amendments never existed in the Banking Companies Ordinance (BCO).

Shazad Dada, Vice Chairman of Pakistan Banks' Association (PBA), is also understood to have written a letter to the Governor of the State Bank of Pakistan forwarding some suggestions and requested him for a meeting to redress the concerns of the banking industry.

PBA represents the Pakistan banking industry. Established in 1953, its main objective is to co-ordinate the efforts of the banking industry, and to share a common vision of progress and development with its members. Banking circles also raised accusing fingers at the central bank, saying that it neither has the capability nor the capacity to regulate the banking institutions at micro level. Such initiatives suggest that the government is pursuing a policy of nationalisation of the banking industry, they said.

The Bill seeks to transfer various other roles and powers to the State Bank of Pakistan; whereas these roles and powers are legally and historically vested with the Securities and Exchange Commission, courts of law and individual or body of shareholders etc. According to them, such a bill will reverse the wheel of growth of banking industry. Banking experts have also expressed reservations about the Banking Companies (Amend-ment) Bill 2009, passed by the National Assembly, which they say has been drafted in such a manner that it would cause confusion regarding interpretation.

Former finance minister Dr Salman Shah, who is also a former director of the State Bank of Pakistan, said that if the banking sector has to run smoothly then the right of the sponsors to appoint management should not be diluted. He said that owners have the right to run the bank through their management profitably as long as they do not violate the regulations of the SBP.

He expressed hope that the Senate would reject the bill. He said the mandate of the SBP is to ensure that its banking laws are fully followed. He said that after the amendment the central bank has been allowed to change the ownership of the bank, arbitrarily, by directing the bank to transfer the shares of a bank to its designated individual and at its determined price.

He said this is an infringement over the rights of the shareholders and is in conflict with the constitution. Senior banker Hassan Iqtidar Dara, who had a distinguished career with City Bank said some of the amendments are ultra virus of the constitution. He said the central bank has a right to ensure compliance with its prudential regulations, failing which it has a right to intervene.

He said it seems that the law is being amended to target a few individuals, and banks. He said the changed law, because of its unconstitutional nature, would soon be challenged in superior court. Former senior vice president Allied Bank of Pakistan, Muhammad Ashraf, said that many provisions, if passed by the Senate, also would suspend the role of the Securities and Exchange Commission of Pakistan (SECP) and courts of law and, at least in two instances, even of the federal government.

Further, he added, there are many provisions which are in direct violation of fundamental constitutional rights. He said the new law has made a fundamental shift from "to regulate a banking company" towards "to regulate a member/shareholder of a banking company". In the entire scheme of corporate laws in force in Pakistan, such powers are vested with the SECP, he added.

This jurisdiction overlap will surely open up a new Pandora 's box or a potential conflict among various regulators in Pakistan, he warned. Similarly, bypassing the SECP and the courts of law for schemes of reconstruction, amalgamation and mergers will knock down all the case laws and resultant interpretations of various provisions of corporate laws, doctrines and principles established during the last many decades, he said.