Pakistan Banking Council

Pakistan Banking Council

1.    At the time of promulgation of this Act, Pakistan banking council was established to oversee the working and performance of nationalized banks. However, the council was dissolved vide Banks (Nationalization) (Amendment) ordinance 1997, the main features as contained in section 9 of the Act are given below:

2.    The Pakistan Banking Council (hereinafter referred to as the Council) shall stand dissolved forthwith.

3.    All assets, properties and rights of the Council shall stand transferred to and vest in, and all liabilities and other encumbrances of the Council shall stand transferred to and become the liabilities and encumbrances of, the State Bank.

4.    Employees of the Council, including its members,-

Ø  who are on deputation or secondment from any public sector financial institution shall revert to, and continue to be employed by, their parent institutions on terms and conditions governing their employment in their parent institutions; and

Ø  Who do not fall in clause (a) shall become employees of the State Bank on terms and conditions governing their employment with the Council.

Ø  Every contract or instrument to which the Council is a party shall continue to be in force and effective as if the State Bank had been a party thereto instead of the Council.

Ø  Any legal proceedings or, as the case may be, any application pending before any authority by or against the Council may be continued by or against the State Bank.

Ø  Where under any statute or statutory instrument, the Chairman or a member of the Council is nominated for a specified assignment of task, the vacancy caused by operation of this section shall be filled by a person nominated by the State Bank.

Provisions regarding management of banks are contained in section 11 which is reproduced below:

1.    Subject to sub section (2) a bank shall have a Board consisting of-

Ø  A President, who shall be its Chief Executive; and

Ø  Not less than five and not more than seven other members.

1.    The Federal Government may, if it deems necessary, appoint a Chairman of the Board in respect of a bank.

2.    The Chairman, the President and other members of the Board-

Ø  shall be appointed by the Federal Government in consultation with the State Bank, for a term of three years, on such terms and conditions as may be fixed by the General Meeting of the bank:

Ø  provided that the Chairman and the President shall be appointed from amongst professional bankers whose names are included in a panel of bankers qualified to be the Chairman or the President,

Ø  which panel shall be determined, maintained and varied, from time to time, by the State Bank;

Ø  may be removed for misconduct or physical and mental incapacity before the expiry of the three years term by the Federal Government in consultation with the State Bank;

Ø  shall stand removed if he becomes ineligible on any of the grounds specified in sub-section(12);

Ø  May be re-appointed by the Federal Government, in consultation with the State Bank of Pakistan, for a further period of three years.

1.    The general direction and superintendence of the affairs and business of a bank, and overall policy making in respect of its operations, shall vest in its Board.

2.    The Board shall determine-

Ø  the credit policies of the banks;

Ø  evaluation criteria for the performance of the employees of the bank other than the President;

Ø  personnel policies of the bank including appointment and removal of officers and employees;

Ø  guidelines for entering into any compromise with borrowers and other customers of the bank; and

Ø  Any other policy matter.

1.    The Chief Executive and other officers of the bank shall act in accordance with the policies, criteria and guidelines determined by the Board.

2.    The board shall appoint committees from amongst the executives of the bank, and determine the powers, functions and duties of such committees.

3.    Where the Federal Government has appointed a Chairman he shall preside over the meetings of the Board, and in case a Chairman has not been appointed, then the president shall preside over the meetings of Board. In the absence of the Chairman or the President, as the case may be the directors may elect one of its members to preside over the meetings.

4.    The President, subject to the control and directions of the Board, shall exercise powers of management of the affairs of the bank.

5.    All selections, promotions and transfers of employees of banks except the President and decisions as to their remuneration and benefits shall be made by the President in accordance with evaluation criteria and personnel policies determined by the Board.

6.    The Board, the President and other officers shall exercise their powers and discharge their duties in accordance with sound banking principles and prudent banking practices and shall ensure compliance with regulations and directions that may be issued by the State Bank from time to time.

7.     No person shall be eligible for appointment as the Chairman, the President, or a member of the Board if-

Ø  he is or has at any time been, adjudged an insolvent or has suspended payment or has compounded with his creditors; or

Ø  he is a minor or is found a lunatic or of unsound mind; or

Ø  he is not citizen of Pakistan; or

Ø  he was at any time in the service of Federal Government or a corporation controlled by any such Government or in the service of a bank and was dismissed; or

Ø  he is a person against whom any action has been taken or any proceedings are pending under section 412 of the Companies Ordinance, 1984, (XLVII of 1984), or section 83 of the Banking Companies Ordinance, 1962 (LVII of 1962); or

Ø  he is, or has been convicted for tax evasion under any law for the time being in force; or

Ø  he is a member of the Senate, National Assembly, any Provincial Assembly or an elected Member of a local council constituted under any law relating to local councils; or

Ø  He is holding an office in a political party.

Effects of Nationalization

Pros:

Ø  Availability of funds to the government for meeting its social sector targets

Ø  Equitable distribution of credit to the different sectors, industries and regions.

Ø  Centrally coordinated policy frame work

Cons:

Ø  Excessive government control leading to the decisions on non professional considerations.

Ø  Lack of fair market competition leading to absence of availability of innovative and diversified products to the customers.

Ø  Neglect of personalized services to the customers.

Ø  Mismanagement leading to alarming size of nonperforming loans portfolio.    

Nationalization Act is an important part of our statutory history. We have, at length discussed objectives merits and grey areas of nationalization. At present the world is heading forward with the notions of disinvestment, privatization and free market and banking industry is no exception to it. At present banking industry is passing through this phase and visibly performing well.