ISLAMABAD: The National Assembly Thursday passed four bills, including the Corporate Restructuring Companies Bill, 2015, the Financial Institutions (Recovery of Finances) (Amendment) Bill, 2015, the Deposit Protection Corporation Bill, 2015 and the Financial Institutions (Secured Transactions) Bill, 2016.
All the bills were piloted by Parliamentary Secretary for Finance and Revenue Rana Afzal Ahmed on behalf of the Finance Minister in the House.
The Statement of Objects and Reasons of the Corporate Restructuring bill says the concept of Corporate Restructuring Company is non-existent in Pakistan so far. The bill seeks to declare the corporate restructuring as new form of business under which companies can be formed in Pakistan for the purpose of transforming the financially distressed companies to financially and operationally viable companies. The bill provides for the establishment, licensing and regulation of corporate restructuring companies and the manner in which they can carry on business.
The Statement of Objects and Reasons of the Financial Institutions (Recovery of Finances) (Amendment) Bill says the FIRO was promulgated in 2001, primarily to deal with the recovery process of the bank loans and loan defaults. However, the apex court declared section 15 of the ordinance as ultravires to the Constitution on December 10, 2013.
The proposed amendments are meant to facilitate recovery process of bank loans so that loan defaults and incidence of written-off loans could be minimized. The pecuniary limit of High Court cases is proposed to be enhanced to Rs 100 million to reduce the burden of cases on superior courts.
The willful default would be an offence under the ordinance. The loans written-off for reasons other than merit, would be open to trial at any stage without application of any limitation, knowingly submission of false information in the court would render the parties ineligible to defend the case.
The smooth recovery process would result in growth of healthy credit culture in the country, reduce risks of default and writing off of loans and would also create additional funds for lending to new segments of borrowers. The measures taken together would stabilize the financial system and contribute to sustainable economic growth in the country.
The Statement of Objects and Reasons of the Deposit Protection Corporation bill says the deposit insurance is considered an integral safety-net tool to ensure the soundness of the banking system and protect small depositors of a bank in case of its failure.
The banking system in Pakistan has become increasingly private sector-owned through the privatization of the once dominant state- owned banks and the entry of new banks. Consequently, the share of public sector banks has dropped from 92 per cent in 1990 to around 19 per cent in March 2015. However, the legal framework originally promulgated for nationalized banks has not kept pace with these developments. While the deposits of all state-owned banks were protected through government guarantees at the time of nationalization, denationalization coupled with entry of new banks has left the safety of deposits to an arbitrary and implicit depositors protection by the government or the State Bank in case of private-sector owned bank fails.
The existing system of implicit deposit protection creates huge moral hazard. In order to reduce the moral hazard implicit in the present system and to protect small depositors, it is proposed to introduce an explicit depositor insurance schemes through DPC which will compensate depositors up to prescribed limited amount in case of a bank's failure. The DPC will be fully owned subsidiary of the State Bank and ensure the soundness of the banking system.
The Statement of Objects and Reasons of the Financial Institutions (Secured Transactions) Bill says taking security interests over movable property is considered risky under the current legal framework. In view to promote the conduct of banking business and to increase access to credit, in particular for small and medium enterprises, micro-businesses and agri-borrowers, it is proposed to enact the Financial Institutions (Secured Transactions) Bill, 2016. The bill provides legal regime for creation, registration, priority and enforcement of security interests over movable property.
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