NA passes SBP (Amendment) Bill, 2015
National Assembly on Thursday passed the State Bank of Pakistan (Amendment) Bill, 2015 granting autonomy and free hand to the State Bank in its functioning.
The purpose of amendments in the SBP Act 1956 was to bring the existing legislation in conformity with the international best practices of a modern central bank. The Bill to further amend the State Bank of Pakistan Act, 1956, was moved by Parliamentary Secretary to Finance, Revenue, Economic Affairs, Statistics and Privatisation Rana Muhammad Afzal Khan on behalf of Finance Minister Ishaq Dar.
According to statement of Objects and Reasons the SBP Act was being amended as the existing clauses pertaining to shareholders, executive committee and local boards have been omitted in the SBP Act by introducing various amendments in the Act since these are no longer relevant after the promulgation of the Bank (Nationalisation) Act, 1974.
A statutory Monetary Policy Committee with external experts to be appointed by the Federal Government has been established, which will be responsible to formulate, support and recommend the Monetary Policy and take appropriate decisions relating to key interest rates, supply of reserves, exchange rate policy and limit and nature of advances and loans to the government. The main object for introducing this statutory committee is to enable the State Bank to perform its essential functions in a professional way in a changing and emerging financial environment.
Consequently various sections in the Act have also been amended to secure the independent statutory role of the Monetary Policy Committee. An enabling clause to allow SBP for establishment of depositor's protection fund has been introduced. Draft law on the deposit protection fund is already under consideration of the federal government whereby the fund will be a subsidiary of SBP.
A new section of Lender of last resort has been introduced in the Act to provide legal certainty to the support that is already being provided by SBP to the troubled banks. Another section on regulatory powers has been introduced in the Act to provide explicit powers to SBP for issuing directives, imposing and recovering penalties, which is already being exercised by SBP under Banking Companies Ordinance 1962.
To further the role of Islamic Banking in Pakistan it is essential for the Bank to engage in Shariah Complaint Instruments an amendment has been introduced whereby Bank is allowed to hold property for the purposes of use of Sharia Complaint Instruments. The role of SBP has been strengthened further by substituting the Federal Government’s approval wherever required with the Board’s approval. It reflects various amendments including but not limited to establishing officers, agencies or branches outside Pakistan, approve amount of assets and the value of such assets forms of weekly returns submitted to Federal Government. As per amendment in Clause 7, it is now incumbent upon the Central Bank to submit a quarterly report to the Majlis-e-Shoora (Parliament) on the state of economy with special reference to economic growth, money supply, credit, balance of payment and price development.
By amending the Act XXXII of 1956, a Monetary Policy Committee, headed by Governor (SBP) or deputy governor nominated by Governor has been constituted. While the members of the Committee included, senior executives of the Bank, nominated by the Governor; four members of the Board, nominated by the Board; two external members, who shall be economists, to be appointed by the Federal Government on recommendation of the Board. The external members of the Monetary Policy Committee shall be appointed for a period of three years and shall be eligible for reappointment for another term of three years.
The provision of sections 13 and 15 shall, mutatis mutandis, apply to external members of the Monetary Policy Committee. The service of the member of the Monetary Committee shall be terminated or a member shall be removed from the Committee in accordance with the procedure laid down in section 15 (a) when the member becomes ineligible to serve the Monetary Policy Committee pursuant to application of sub-section; or (b) to whom grounds for removal of the members of the Board or termination of their appointments apply; when the member contravenes the regulations of procedure pf the Monetary Policy Committee.