Law of Banking

Study Notes

LLM, Islamic Commercial Law

F24
Up to 19 October 2024
 1. State Bank of Pakistan Act 1956

Section 4C : Functions of the Bank

The State Bank of Pakistan Act outlines the core functions of the Bank in achieving its objectives.
These functions are essential for maintaining financial stability and promoting the efficient operation
of Pakistan's financial system. Below is a summary of the key functions:

1.Monetary Policy: The SBP is responsible for determining and implementing monetary policy.
2.Exchange Rate Policy: It formulates and implements the exchange rate policy.
3.Research: The Bank conducts and disseminates research relevant to its objectives and functions.
4.International Reserves: SBP holds and manages all international reserves of Pakistan.
5.Currency Management: It issues and manages the currency, including regulating denominations.
6.Data Collection: The Bank collects and produces statistics related to its objectives and functions.
7.Payment Systems Oversight: It operates and oversees payment systems.
8.Regulation of Banks: SBP licenses, regulates, and supervises scheduled banks and financial institutions.
9.Resolution of Banks: It has powers to resolve issues with scheduled banks and other financial institutions.
10.Macro-Prudential Policies: The Bank adopts and implements macro-prudential policies for banks and
financial institutions.
11.Government Banking Services: SBP acts as a banker, financial adviser, and fiscal agent to the Government.
12.Financial Inclusion: The Bank promotes financial inclusion in Pakistan.
13.Development of Market Infrastructure: SBP develops financial market infrastructures.
14.International Participation: It participates in international financial institutions and councils.
15.Cooperation: The Bank cooperates with domestic and foreign entities on matters related to its objectives.
16.Ancillary Activities: SBP carries out activities incidental to exercising its powers and functions under the Act.

Section 9C : Prohibition on Government Borrowing

Section 9C of the State Bank of Pakistan Act establishes strict prohibitions on government borrowing
from the SBP to maintain financial discipline and limit monetary financing of government deficits.
The key points are:

1.No Direct Credits or Guarantees:

● The SBP is prohibited from extending direct loans or guarantees to the Government or any
government-owned entity.
2.Exception for Government-Owned Banks:
● Government-owned or publicly-owned banks and other regulated entities will be treated the same
as privately-owned banks, and the prohibition does not apply to them.

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 3.No Purchase of Government Securities in the Primary Market:
● The SBP is barred from purchasing government or government-owned entity securities in the
primary market. However, it may buy such securities in the secondary market.

4.No Guarantees for Government Loans:

● The SBP is prohibited from guaranteeing any loan, advance, or investment of the Government or its
entities.
● Existing debts owed to the SBP as of the StateBank of Pakistan (Amendment) Act, 2021 must be
retired according to their original terms. No roll-over or re-profiling of these debts is allowed.
5.Existing Guarantees:
● The SBP may not increase existing guarantees issued before the Amendment Act of 2021, but these
guarantees can be rolled over under the same terms.
6.Pakistan Railways Overdraft:
● Any outstanding overdraft against Pakistan Railways must be converted into long-term debt with an
eight-year duration, and the debt should be remunerated at market interest rates.

Section 17G : Lender of Last Resort

Section 17G of the State Bank of Pakistan Act outlines the role of the SBP as a lender of last resort,
providing guidelines for offering financial assistance to scheduled banks in situations of liquidity
crises. Here are the key points:

A. Provision of Short-Term Financial Facility:

● If a scheduled bank faces liquidity issues and approaches the SBP, the SBP may provide a short-
term financial facility, provided that:
❖ The scheduled bank is considered solvent by the SBP.
❖ The bank offers adequate collateral to support the facility.
❖ This facility can be extended regardless of certain restrictions in section 20
B. Exceptional Circumstances:
● If the SBP deems that the financial facility is essential to preserve the stability of the financial
system but the bank doesn't meet the solvency or collateral requirements, the SBP may still offer
assistance if:
❖ The SBP determines that the bank is viable in the medium term.
❖ The facility is secured by a written irrevocable guarantee from the Federal Government.
C. Exclusion from Bank's Capital:
● The financial facility provided under this section will not involve the SBP participating in the capital
of the scheduled bank.
● Any existing equity holdings by the SBP in scheduled banks must be liquidated within ten years
from the commencement of the State Bank of Pakistan (Amendment) Act, 2021.

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 Section 18 : Open Market and credit Operations
Section 18 of the State Bank of Pakistan Act outlines the framework for open market and credit
operations conducted by the SBP. These operations are key tools for monetary policy and financial
stability. Here's a breakdown:

1) Market Operations:The SBP can engage in various financial market activities, including:
● Buying and selling government securities outright (spot or forward) and conducting
repurchase agreements, but only with securities purchased in the secondary market.
● Engaging in foreign currency swaps or lending operations.
● Lending or borrowing claims, marketable instruments, and precious metals.
● Conducting credit operations with banks operating in Pakistan, with loans secured
by adequate collateral.
● Using other means deemed suitable for open market operations.
A key proviso is that government securities already purchased in the primary market before the
State Bank of Pakistan (Amendment) Act, 2021 can be sold or used in repurchase agreements.

2) Monetary Policy Committee's Role:

● The Monetary Policy Committee (MPC) is tasked with determining the instruments,
activities, and operational methods for monetary control, including Shariah-based
instruments.
● The MPC also sets the conditions under which the SBP will engage in open market
and credit operations.
3) Issuance of Certificates and Instruments:
● To regulate the monetary and credit system, the SBP may issue certificates of
deposit and introduce new instruments, including those compliant with Shariah
principles.

Section 19 : Declaration of Approved to Foreign Exchange

Section 19 of the State Bank of Pakistan Act grants the Board of Directors the authority to designate
certain foreign currencies or monetary units as approved foreign exchange. Specifically:

● The Board can declare the currency of any country or a monetary unit of account to be
approved foreign exchange.
● This declaration can be made for all or any specific purposes under the Act.
● This power is crucial for regulating foreign exchange operations, allowing the SBP to
determine which currencies are recognized for transactions, reserves, and other financial
activities governed by the Act.

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Section 21 : Government Business
Section 21 of the State Bank of Pakistan Act outlines the role of the SBP in managing government
business. Here are the key points:

1. Acceptance and Management of Government Funds:

● The SBP is responsible for accepting funds on behalf of the Federal Government and
Provincial Governments. It will make payments from their accounts up to the
balance available and manage other banking operations such as exchange,
remittance, and the management of public debt.
2. Entrusting Money Transactions:
● The Federal Government and Provincial Governments must entrust the SBP with all
their money transactions, remittances, and banking operations within Pakistan,
under mutually agreed conditions.
● Additionally, they are required to deposit all cash balances with the SBP without
earning interest.
● However, governments may still conduct money transactions and hold balances in
places where the SBP has no branches or offices.
3. Public Debt Management:
● The SBP is entrusted with the management of public debt for both the Federal
Government and Provincial Governments, including issuing new loans, under
conditions agreed between the governments and the SBP.
4. Resolution of Disagreements:
● If any disagreements arise regarding the conditions of the SBP's handling of
government money and debt transactions, the Federal Government has the final
authority to decide the terms.
Section 23 : International Reserves Portfolio
Section 23 of the State Bank of Pakistan Act outlines the SBP's authority and responsibilities
concerning the management of the country's international reserves portfolio.The key provisions are:

1. Purchase, Holding, and Sale of Assets:

● The SBP may directly or indirectly purchase, hold, and sell a range of financial assets,
including:
❖ Currencies, financial, and capital instruments.
❖ Indices and derivatives issued by governments, agencies, local authorities,
corporations, or supranational organizations.
● These assets must be denominated in approved foreign exchange (declared by the
Board), and their maturity must not exceed 30 years at the time of purchase.
● The restriction on maturity does not apply to securities that were already held by
the SBP when this Act came into force or securities received as assets under the
Pakistan (Monetary System and Reserve Bank) Order, 1947.
● The Board determines which asset classes are permissible for the SBP's international
reserves portfolio.
2. Appointment of Advisors:
● The SBP has the authority to appoint managers, custodians, consultants, or
professional advisors to manage the country's foreign exchange reserves effectively.

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Section 24 : Sole right to issue Bank Notes
Section 24 of the State Bank of Pakistan Act grants the State Bank of Pakistan (SBP) the exclusive
authority to issue banknotes in Pakistan. The key points are:

1. Sole Right to Issue Bank Notes:

● The SBP holds the exclusive right to issue banknotes that are payable to the bearer
on demand in Pakistan.
● This right is exercised in accordance with the provisions of the Act.
● Government of Pakistan currency notes, supplied to the SBP by the Government,
can be issued by the SBP, but only for a period determined by the Federal
Government upon the recommendation of the Board.
2. Penalties for Contravention:
● Any person who violates this exclusive right or commits any offense related to the
unauthorized issuance of banknotes (as detailed in Section 35) will be subject to
penalties.

Section 25 : Legal Tender

Section 25 of the State Bank of Pakistan Act defines the concept of legal tender for banknotes in
Pakistan and outlines the process for withdrawing certain series of notes from circulation. Key
provisions are:

1. Legal Tender Status:

● All banknotes issued by the SBP are legal tender throughout Pakistan for the amount
specified on the note.
● These banknotes are guaranteed by the Federal Government, meaning they are
recognized for the settlement of debts and payments within Pakistan.
2. Withdrawal of Legal Tender Status:
● On the recommendation of the Board, the Federal Government can declare that
certain series of banknotes (of any denomination) will cease to be legal tender from
a specified date, through a notification in the official Gazette.
● After this date, the affected notes can still be exchanged for valid currency within a
specified period, which will be outlined in the notification. The SBP’s offices,
branches, and agencies designated for this purpose will facilitate the exchange of
such notes.

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 Section 26 : Issue Department

Section 26 of the State Bank of Pakistan Act establishes the Issue Department within the SBP and
sets out rules for how banknotes are issued. The key points are:

1. Separation of the Issue Department:

● The Issue Department is responsible for the issuance of banknotes.
● It is to be kept wholly distinct from the Banking Department of the SBP, meaning
that it operates independently with its own set of assets and liabilities.
● The assets of the Issue Department are not subject to any liabilities other than those
specifically related to the issuance of banknotes, as described in Section 32.
2. Rules for Issuing Banknotes:
● The Issue Department is only allowed to issue banknotes in exchange for:
❖ Other banknotes.
❖ Coin, bullion, or special drawing rights held with the International Monetary
Fund (IMF).
❖ Approved foreign exchange or securities that are permitted under the Act to
be held as part of the Issue Department's assets.

Section 30 : Assets of the Issue Department

Section 30 of the State Bank of Pakistan Act details the composition and management of the assets
of the Issue Department, ensuring that the value of the assets is sufficient to cover its liabilities,
particularly regarding the issuance of banknotes. Key points include:

1. Asset Requirements:
● The assets of the Issue Department must always equal or exceed its liabilities.
● These assets are to be maintained in two main categories:
(a)- A portion of the assets, as specified by the Board, must be held in:Gold coins or
gold bullion.Silver bullion.Special Drawing Rights (SDRs) held with the International
Monetary Fund (IMF).Approved foreign exchange.

(b)- The remainder of the assets must be held in:

- Rupee coins.
- Rupee securities of any maturity.
- Bills of exchange and promissory notes payable in Pakistan that are eligible
for purchase under specific clauses in Section 17.
- Promissory notes from advances and loans made under Section 17, backed
by certain securities.
● Additionally, the assets due to the Government of Pakistan from the Pakistan
(Monetary System and Reserve Bank) Order, 1947 that are still held by the Reserve
Bank of India are considered part of the assets.

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 2. Valuation of Assets:
● Gold coins and bullion are valued at the market value of their fine gold content.
● Silver bullion is valued at the market value of its fine silver content.
● Rupee coins are valued at their face value.
● Rupee securities and other specified securities are valued at the current market rate.
3. Custody of Gold and Silver:
● At least 17/20ths of the gold or silver held as assets must be in the custody of the
Bank, including its branches, offices, or agencies.
● Gold or silver held in other banks, mints, treasuries, or in transit may still be counted
as part of the assets.
4. Approved Foreign Exchange:
● Approved foreign exchange held as assets can be in:
❖ Balances with the principal currency authority of a country with approved
foreign exchange or at a bank in such a country.
❖ Bills of exchange with a maturity of not more than 180 days, drawn on and
payable in a country with approved foreign exchange.
❖ Government securities with a maturity of no more than five years, payable
in an approved foreign exchange.
5. Exemption for Existing Securities:
● The maturity restrictions do not apply to securities held by the Bank when this Act
came into force, nor to those received under the Pakistan (Monetary System and
Reserve Bank) Order, 1947.

Section 31 : Suspensions of Assets Requirements

Section 31 of the State Bank of Pakistan Act provides a mechanism for temporary suspension of the
asset requirements stipulated in Section 30. The key points are:

1. Temporary Suspension of Asset Requirements:

● The SBP is allowed to temporarily hold less than the required amount of assets (as
specified in Section 30(1)(a)), such as gold coin, gold or silver bullion, Special
Drawing Rights (SDRs), or approved foreign exchange.
2. Sanction by the Board:
● This suspension can only be made with the previous sanction of the Board.
3. Duration of Suspension:
● The initial period of suspension can last up to 30 days.
● This period may be extended, with the Board's approval, by additional periods of up
to 15 days each.

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Section 32 : Liabilities of the Issue Department
Section 32 of the State Bank of Pakistan Act defines the liabilities of the SBP's Issue Department and
provides guidelines on how long banknotes are considered in circulation. Key points are:

1. Liabilities of the Issue Department:

● The liabilities of the Issue Department must equal the total value of all banknotes in
circulation at any given time.
2. Banknotes No Longer in Circulation:
● If a banknote has not been presented for payment within 40 years from the July 1st
following the date of its issue, it will be considered no longer in circulation.
● The value of such a note, even though no longer in circulation, will be transferred
from the Issue Department to the Banking Department.
● If the banknote is presented for payment after the 40-year period, it will still be paid
by the Banking Department.

Section 35 : Offences and penalties relating to unauthorized issue of bills and

bank notes.
Section 35 of the State Bank of Pakistan Act outlines offences and penalties related to the
unauthorized issuance of bills and banknotes. The key points are:

1. Restriction on Issuance of Bills and Banknotes:

● No person or entity in Pakistan, except for the State Bank of Pakistan (SBP) or the
Federal Government (if expressly authorized), may:
❖ Draw, accept, make, or issue any bill of exchange, hundi, promissory note, or
other engagement for the payment of money payable to bearer on demand.
❖ Borrow, owe, or take up any money on such bills, hundis, or notes payable
to bearer on demand.
❖ Cheques or drafts, including hundis payable to bearer on demand or
otherwise, are allowed only when drawn on a person’s account with a
banker, shroff, or agent.
2. Prohibition on Issuance of Promissory Notes Payable to Bearer:
● No person in Pakistan, except for the SBP or the Federal Government, may issue any
promissory note that is expressed to be payable to the bearer of the instrument.
3. Penalties:
● Any person violating these provisions shall be liable to a fine of up to double the
amount of the bill, hundi, promissory note, or engagement for which the offense is
committed.
4. Prosecution:
● Prosecutions under this section can only be initiated based on a complaint made on
behalf of the SBP.

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Section 37 : Scheduled banks.

Section 37 of the State Bank of Pakistan Act outlines the criteria and processes for declaring a bank
as a scheduled bank and the responsibilities of the SBP in maintaining an up-to-date list of such
banks. Here are the key points:

1. List of Scheduled Banks:

● The SBP is required to maintain an up-to-date list of scheduled banks at all its offices
and branches.
2. Declaration of a Scheduled Bank:
● The SBP will declare a bank to be a scheduled bank by a notification in the official
Gazette if the bank meets the following criteria:
★ The bank is a banking company as defined in Section 227F of the Companies
Act, 1913, a co-operative bank, or a corporation or company incorporated or
established under any law in force either in or outside Pakistan.
★ The bank has a paid-up capital and reserves with an aggregate value of not
less than five lakhs of rupees (500,000 PKR).
An exception may be made for co-operative banks.

★ The bank satisfies the SBP that its affairs are not being conducted in a way
that is detrimental to the interests of depositors.
3. Descheduling of a Bank:
● The SBP may deschedule any bank if it:Fails to meet the requirements outlined in
clause (a).
● Goes into liquidation or otherwise ceases to carry on banking business, either wholly
or partially.
● However, the SBP may defer this decision and give the bank a reasonable period to
rectify its situation and meet the requirements under sub-clauses (ii) and (iii) of
clause (a).
4. Alteration in the List:
● The SBP must update the list whenever a scheduled bank changes its name.
5. Valuation of Capital and Reserves:
● The term value refers to the real or exchangeable value, not the nominal value of
the bank's capital and reserves.
● The valuation made by the SBP is final.

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 2. Banking Companies Ordinence 1962

5. Definitions:
In this Ordinance, unless there is anything repugnant in the subject or context, the following
definitions apply:

(b) Definition of "Banking":

 "Banking" refers to the acceptance of money deposits from the public for the purpose of:

o Lending or investment.

 These deposits are repayable on demand or otherwise, and can be withdrawn through:

o Cheque

o Draft

o Order

o Other similar instruments.

(c) Definition of "Banking Company":

 A "banking company" is any company that conducts the business of banking in Pakistan.

 It also includes the branches and subsidiaries of banking companies incorporated in

Pakistan that operate outside Pakistan.

(f) Definition of "Demand Liabilities" and "Time Liabilities":

 "Demand liabilities" are liabilities that must be paid upon demand.

 "Time liabilities" are liabilities that do not have to be paid on demand and can be settled
at a future date or within a predetermined time frame.

7. Form of Business in Which Banking Companies May Engage:

(1) Permissible Business Activities:
A banking company, besides conducting banking business, may engage in the following activities:

(a) Borrowing and Lending Activities:

 Borrowing, raising, or taking up money.

 Lending or advancing money, with or without security.

 Dealing in financial instruments such as:

o Bills of exchange

o Hundies

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 o Promissory notes

o Coupons, drafts, and bills of lading

o Railway receipts, warrants, debentures, certificates

o Participation term certificates, term finance certificates, Musharika certificates,

Modaraba certificates (approved by the State Bank)

 Buying, selling, and dealing in bullion (precious metals).

 Dealing in foreign exchange and foreign banknotes.

 Underwriting and dealing in stocks, shares, debentures, and securities, including investment
activities.

 Acting on behalf of others in the purchase and sale of bonds, scrips, and securities.

 Negotiating loans and advances.

 Providing services for the safekeeping of valuables, including safe deposit vaults.

 Collecting and transmitting money and securities.

(aa) Providing Finance:

 Offering finance as defined under the Banking Tribunals Ordinance, 1984.

(b) Acting as Agents:

 Acting as agents for any Government, local authority, or any other person.

 Engaging in agency business such as clearing and forwarding goods, receiving payments, and
acting as an attorney for customers, excluding managing agent or treasurer roles.

(bb) Modaraba Company Operations:

 Acting as a Modaraba company under the Modaraba Companies and Modaraba (Floatation
and Control) Ordinance, 1980.

(c) Contracting for Public and Private Loans:

 Contracting for and issuing public or private loans.

(d) Underwriting and Managing Public Issues:

 Effecting, insuring, underwriting, managing, and participating in public or private issues, such
as Government, municipal, or corporate bonds.

 Lending money for these public or private issues.

(e) Guarantee and Indemnity Business:

 Engaging in guarantee and indemnity services, including insuring and guaranteeing loans or
issues.

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 (ee) Acquisition of Assets for Business:

 Purchasing or acquiring property, including:

o Commodities

o Patents, designs, trademarks, copyrights (with or without buy-back arrangements).

 Selling or leasing acquired property through hire-purchase, deferred payment, leasing, or

rent-sharing agreements.

(f) Management of Property in Settling Claims:

 Managing, selling, or realizing property in satisfaction of claims or debts.

(g) Dealing in Secured Property:

 Acquiring and holding property or rights used as security for loans or advances.

(h) Trust Administration:

 Undertaking and executing trusts on behalf of clients.

(i) Estate Administration:

 Acting as executor, trustee, or administrator for estates.

(j) Employee Benefits and Charitable Contributions:

 Establishing funds, associations, or trusts for employees and ex-employees.

 Offering pensions, insurance, and similar benefits.

 Contributing to charitable, public, or general causes.

(k) Real Estate:

 Acquiring, constructing, maintaining, and altering buildings for the company’s use.

(l) Managing Company Property:

 Selling, leasing, mortgaging, improving, or developing company property.

(m) Acquiring Other Businesses:

 Acquiring or merging with businesses in line with the activities described in this section.

(n) Other Incidental Activities:

 Conducting activities that are incidental or conducive to advancing the business of the
company.

(o) Additional Business Approved by State Bank:

 Engaging in any other form of business specified by the State Bank of Pakistan via circulars.

(2) Restriction on Business Activities:

No banking company shall engage in any business activity other than those listed in sub-section (1).

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8. Use of the Word "Bank" or Any of Its Derivatives:
1. Mandatory Use for Banking Companies:

o Every company conducting the business of banking in Pakistan must use the word
"bank" or any of its derivatives (e.g., banker, banking) in its name.

o No company, other than a banking company, is allowed to use any word in its name
that implies it is engaged in the business of banking.

2. Exceptions to This Rule: (a) Subsidiaries of a banking company:

o Subsidiaries formed for one or more purposes mentioned in sub-section (1) of

Section 23 can use the word "bank" in their name, provided their name indicates
that they are a subsidiary of a banking company.

(b) Associations of Banks:

o Associations formed for the protection of mutual interests of banks, and registered
under Section 42 of the Companies Ordinance, 1984 (XLVII of 1984), are also
permitted to use the word "bank" in their name.

3. Special Authorization by State Bank:

o The State Bank of Pakistan, via notification in the Official Gazette, may allow a non-
banking company to use the word "bank" or its derivatives in its name, subject to
certain conditions as deemed necessary by the State Bank.

13. Requirement as to Minimum Paid-up Capital and Reserves

(1) General Requirements for Banking Companies:

No banking company shall:

(a) Commencement of Business:

 A banking company cannot commence its business unless it has a minimum paid-up capital
as determined by the State Bank of Pakistan.

(b) Continuation of Business:

 A banking company cannot carry on its business unless the aggregate of its capital and
unencumbered general reserves reaches a minimum value within the period specified by
the State Bank.

o This value is subject to notification by the State Bank, either for all banking
companies in general or for a specific banking company.

(2) Requirements for Foreign Banking Companies:

Banking companies incorporated outside Pakistan must comply with the following deposit
conditions to meet the requirements of sub-section (1). These deposits must be made with the State
Bank and consist of the following:

(i) Interest-free Deposits in Pakistan Rupees:

 The company must maintain an interest-free deposit in Pakistan Rupees.

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(ii) Interest-free Deposits in Foreign Exchange:

 Deposits can also be made in freely convertible foreign exchange approved under the State
Bank of Pakistan Act, 1956, as specified by the State Bank.

(iii) Deposit of Unencumbered Approved Securities:

 The foreign company must deposit unencumbered approved securities.

(3) Enforcement by State Bank:

 If a banking company fails to comply with the provisions of clause (b) of sub-section (1)
within the stipulated period, the State Bank may:

o Issue an order in writing requiring the company to deposit an amount, as

determined by the State Bank, which is equal to the shortfall between the
company's current capital and unencumbered reserves and the minimum required
amount.

o The banking company must comply with this order.

(4) Treatment of Deposits by Foreign Banking Companies:

 Any amount deposited under sub-section (2) by a banking company incorporated outside
Pakistan shall be treated as an asset of the company.

o In the event that the company ceases its banking business in Pakistan, the deposits
will serve as an asset for settling the claims of all creditors within Pakistan, and these
claims will have first charge over the deposited funds.

(5) Disputes in Capital Calculation:

 In case of any disputes related to calculating the aggregate value of the capital and
unencumbered general reserves of a banking company, the determination made by the
State Bank shall be final.

Explanation:

 For the purposes of this section:

(a) Definition of Value:

 The term "value" refers to the real or exchangeable value of assets. If the real or
exchangeable value exceeds the nominal value, the nominal value is considered.

(b) Definition of Capital and Unencumbered General Reserves:

 The term "capital and unencumbered general reserves" refers to paid-up capital and any
other items as notified by the State Bank from time to time.

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25A. Power of the State Bank to Collect and Furnish Credit Information:
(1) Collection and Provision of Credit Information:

(a) Obligation on Banking Companies to Furnish Credit Information:

 Every banking company must provide credit information to the State Bank in the manner
specified by the State Bank.

(b) Availability of Credit Information:

 The State Bank, either on its own initiative or at the request of a banking company, may
provide this information to any banking company, subject to the payment of a fee fixed by
the State Bank.

(c) Non-Disclosure of Source:

 While providing credit information to a banking company, the State Bank will not disclose
the names of the banking companies that originally supplied the information.

(d) Mandatory Credit Information for Large Financial Arrangements:

 If a banking company plans to enter into a financial arrangement exceeding the limit set by
the State Bank, it must first obtain credit information about the borrower from the State
Bank before proceeding with the arrangement.

(2) Confidentiality of Credit Information:

(a) Confidentiality Requirement:

 Any credit information provided by the State Bank to a banking company must be treated as
confidential.

(b) Restriction on Disclosure:

 The credit information cannot be published or disclosed, except for the purposes of this
section or with the prior permission of the State Bank.

(3) Immunity from Legal Demands:

(a) Protection from Disclosure Requests:

 No court, tribunal, authority, or even a Government officer can compel the State Bank or
any banking company to disclose any credit information collected or supplied under this
section.

Explanation:

(a) Definition of "Borrower":

 A borrower refers to any person to whom a credit limit has been sanctioned by a banking
company, regardless of whether the credit has been utilized. The definition also includes:

(i) Subsidiaries of Companies or Corporations:

 For companies or corporations, the term borrower includes their subsidiaries.

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(ii) Members of Hindu Undivided Families:

 For a Hindu Undivided Family (HUF), any member of the family or any firm where such a
member is a partner.

(iii) Partners in Firms:

 For firms, the term borrower includes any partner of the firm or any other firm where the
partner is also a partner.

(iv) Partners in Firms for Individuals:

 For an individual, any firm in which the individual is a partner is also considered.

(b) Definition of "Credit Information":

 Credit Information includes:

(i) Loan and Credit Details:

 Information on the amounts, types of loans or advances, and other credit facilities,
including bills purchased or discounted, letters of credit, guarantees, indemnities, and other
commitments extended by the banking company to a borrower or class of borrowers.

(ii) Nature of Security:

 Details of the security provided by the borrower for the credit facilities granted.

(iii) Customer Guarantees or Indemnities:

 Information about guarantees, indemnities, or other commitments furnished by a customer

to the banking company.

(iv) Account Operations for Credit Facilities:

 Details on the operations or accounts related to loans, advances, and other credit facilities
mentioned above.

33A. Fidelity and Secrecy:

(1) Obligation to Maintain Secrecy:

(a) Customary Practices of Banks:

 Every bank and financial institution is required to observe the customary practices and
usage among bankers in relation to confidentiality.

(b) Non-Disclosure of Customer Information:

 Banks and financial institutions shall not disclose any information related to the affairs of
their customers, unless:

o It is required by law.

o It is necessary or appropriate to do so based on banking practices and customary

usage among bankers.

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(2) Declaration of Fidelity and Secrecy:

(a) Obligation of Bank Officials:

 Every president, chairman, member of the Board, administrator, auditor, adviser, officer,
or other employee of a bank or financial institution must, before assuming their office, make
a formal declaration of fidelity and secrecy.

o This declaration must be made in a form prescribed by the State Bank.

(3) Financial Disclosures in Balance Sheets:

(a) Disclosure Requirements for Written-Off Loans:

 Notwithstanding the confidentiality obligations in sub-sections (1) and (2), every bank and
financial institution is required to include the following in their balance sheet and profit and
loss account statements:

o Statements regarding written-off loans or any financial relief of five hundred

thousand rupees or above granted to a person.

o Details of any provisions made for bad or doubtful debts.

(4) Publication of Loan Defaulters:

(a) Power of the State Bank to Publish Loan Defaulters:

 The State Bank of Pakistan may, if deemed necessary during general elections, publish a list
of persons to whom loans, advances, or credits were extended by a bank or financial
institution that:

o Are either overdue by more than one year from the due date.

o Were unjustifiably written off in violation of banking practices, rules, or regulations,

either under their own names or in the names of:

 Spouses or dependents.

 Business concerns mainly owned or managed by them.

(b) Government Determination of Cut-off Date:

 The Government will determine a cut-off date for publishing the list, specifying loans
unjustifiably written off on or after this date.

(c) Right to Notice and Hearing:

 Before any person's name is published in the list, the person shall be given:

o Prior notice of the inclusion.

o An opportunity to request a hearing to present their case.

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