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Banking Laws & Practices - BNK601

BNK601 - Banking Laws & Practices - Lecture 1

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Course Management

Objectives

This course has been designed with the view to focus special emphasis on the following aspects:

  • Developing interpretational skills and clear understanding of the students regarding prevalent banking and ancillary laws in Pakistan.
  • Developing professional skills so as to apply these laws in real life situations.
  • Enabling them to manage legal requirements pertaining to banks and banking transactions.

Course management:

The entire course would comprise of the following modules, detail of the topics covered under these modules is also given hereunder:

Module 1

It would cover the following topics:

  • Course Management
  • Introduction to legal system of Pakistan
  • Introduction to Banking Laws

Module 2

Financial system and banking: it would cover the following topics/contents:

  • Financial institutions
  • Financial markets and Financial instruments

Evolution of Banking: it would cover in detail the following topics/contents:

  • Historical background
  • Nationalization of banks
  • The (banks nationalization Act, 1974)

Following topics shall be covered at length in this module:

Direct finance, indirect finance, Foreign exchange market, Stock markets, Bond markets, Financial Intermediaries including: Commercial Banks, Credit Unions, Savings and Loan Associations, Mutual Saving Banks, Mutual Funds, Finance Companies, Pension Funds etc. Key Services Provided by Financial Institutions like Risk Sharing, Liquidity Information services. We shall also discuss concept and scope of Debt and equity markets, Primary Markets and secondary markets, Exchange markets and over-the-counter markets (OTC), including Forward contracts and future markets. money market Instruments and Capital market instruments.

Module 3

Some important statutes regarding banking: This would cover the following statutes:

Banking Companies Ordinance, 1962:
it would comprise the following topics/contents:

  • Introduction of the ordinance
  • Important statutory definitions
  • Forms of business in which banking companies may engage
  • Regulations regarding Paid- up capital, Subscribed capital and Authorized capital
  • Election of new directors
  • Cash reserve
  • Powers of State bank to control advances by banking company
  • Licensing policy of State Bank of Pakistan
  • Guidelines by State Bank
  • Accounts and balance sheet
  • Power of State Bank to remove directors
  • Prosecution of directors, chief executive or other officers
  • Transaction of banking business illegally by companies, etc.
  • Suspension of business
  • Winding-up of banking company
  • Special provisions for speedy disposal of winding up proceedings
  • Banking Mohtasib
  • Procedure for making complaints to Banking Mohtasib
  • Penalties
  • Power of federal government to make rules
  • Banking companies rules, 1963

SBP Act, 1956: it would cover in detail the following topics/contents:

  • Establishment and incorporation of the banks
  • Management
  • Business and functions of banks

SBP Banking Services Corporation, Ordinance, 2001

  • Pakistan banking and finance services commission Act, 1992
  • The co-operative societies and co-operative banks (re-payment of loans ordinance, 1966)
  • The establishment of federal bank for co-operative and regulation of co-operative banking Act, 1977
  • Micro finance institutions Ordinance, 2001
  • The corporate and industrial re-structuring corporation Ordinance, 2000

Module 4

Banker - Customer relationships: it would cover in detail the following topics/contents:

  • Banker and customer relationship
  • Debtor and  creditor relationship
  • Agency relationship
  • Bailor- Bailee relationship
  • Mortgagor-Mortgagee Relationship
  • Pledger-pledgee relationship


We shall focus special attention on the following topics:

Banker , customer , Rights and Duties of Customer, Duties of the Agent, Rights of the Agent, Duties of Principal, Essentials of Bailment, Duties of Bailee, Rights of Mortgagee, Essentials of a Valid Contract, Classification of Contracts, Termination of Banker- Customer Relationship.

Module 5

Types of Customer’s Account: it would cover in detail the following topics/contents:

  • Opening of account
  • Classified account
  • Partnership account
  • Account of companies
  • Joint accounts
  • Trust account
  • Accounts of executors/ administrator

Module 6

Law relating to Negotiable instruments: it would cover in detail the following topics/contents:

  • Introduction
  • Promissory note
  • Bill of exchange
  • Negotiation of instruments
  • Negotiation by delivery
  • Negotiation by endorsement
  • Holder in due course
  • Presentation of instruments
  • Payment and interest
  • Discharge from liability

Module 7

Principles and Forms of Lending: it would cover in detail the following topics/contents:

  • Principles of lending
  • Forms of lending
  • Over drafts, loans

Securities for Advances: it would cover the following topics/contents:

  • Pledge
  • Hypothecation
  • Mortgage

Module 8

Non-funded facilities: it would cover the following topics/contents:

  • Letter of credit
  • Definition of letter of credit
  • Revocable and irrevocable credits
  • Types of letter of credit
  • Opening of letter of credit
  • Negotiation of letter of credit
  • Reimbursement of letter of credit
  • Rules regarding Non-funded facilities
  • Uniform customs and practices for documentary credit (UCP 600)
  • Uniform Rules for Contract Guarantee URCG-325
  • Uniform Rules for Demand Guarantee URDG-458

Module 9

Designing of legal documents: it would cover in detail the following topics/contents:

  • Termination of the agreement, Mortgage deed
  • Redemption deed
  • Redemption of mortgage
  • Letter of hypothecation

Module 10

Designing of legal documents: it would cover in detail the following topics/contents:

  • Hire- purchase agreement
  • Termination of the agreement
  • Mortgage deed
  • Redemption deed
  • Redemption of mortgage
  • Letter of hypothecation

Prudential regulations of SBP: it would cover in detail the following topics/contents:

 

  • Regulations for consumer financing
    • Statutory Definition
    • Regulations
    • Classifications
  • For small and medium enterprises financing
    • Definitions
    • Regulations
    • Classifications
  • Prudential regulations for corporate/ commercial banking
    • Definitions
    • Risk management
    • Corporate governance

Guidelines for banks by SBP: it would cover in detail the following topics/contents:

  • Defining risk
  • Risk management
  • Risk management framework
  • Managing credit risk
  • Components of credit risk management
  • Managing problem credits
  • Managing market risk
  • Elements of market risk management
  • Risk management committee
  • Managing liquidity risk
  • Early warning indicators of liquidity risk
  • Liquidity risk strategy
  • Managing operational risks
  • Operational risk management principles
  • Risk reporting

Module 11

Financial institutions ( Recovery of Finances) Ordinance, 2001: It would cover in detail the following topics/contents:

  • Introduction
  • Definitions
  • Establishment of banking court
  • Power of banking court
  • Procedure of banking court
  • Leave to defend
  • Interim decree
  • Power to set aside decree
  • Disposal of suit
  • Sale of mortgage property
  • Attachment before judgment
  • Banking documents
  • Execution of decree, appeal

Module 12

It would cover the following topics:

  • Application of limitation Act, 1908
  • Ancillary statutes
  • Limitation Act, 1908
  • Stamp Act, 1899
  • Arbitration Act, 1949
  • Contract Act, 1872

Besides text books and reference books, sufficient reading material shall be available in the form of handouts. It is believed that students shall be duly benefited from the multiple resources at their disposal.