November 15, 2006	Wednesday	Shawwal 22, 1427

KARACHI, Nov 14: The State Bank finally intervened to check the heavy purchasing of costly IT solutions and software by the banks.

The SBP through a circular barred all banks from purchasing of IT solutions and software without no objection certificate (NOC) from the central bank. They could spend within a limit of Rs10 million on their own but for any transaction above this limit they would require an NOC.

There have been reports that more advanced IT solutions and software were being imported at exorbitant costs than actually been required by the banks. The practice continued for more than five years.

“It has been observed by the State Bank that some of the banks are entering into contracts for procurement of IT solutions and software without ensuring compatibility of such solutions and software with their existing systems,” said a SBP circular on Tuesday.

State Bank’s own internal reports have been indicating that the banks’ IT departments were involved in false purchasing. They were purchasing the IT solutions not applicable to the system already existing in the country.

A large public sector bank spent tens of millions of rupees to purchase such solutions that were not required by the bank and on the indication of the SBP internal report, the IT head was forced to resign from his post but the person was influential enough to retain his association with the bank.

Banks have been spending big money on IT solutions, which in some cases was second to salary packages of the hierarchy in the banking industry.

The State Bank said that these purchases were being made without carrying out due diligence of the solution providers.

“This has also created the issues of effective integration with the existing systems and non-compatibility with the IT systems of the SBP,” said the circular.

“It has been decided that before entering into any contract for procurement of IT solutions involving an amount exceeding Rs10 million or making any further payments against all such contracts, which have already been executed, banks and DFIs will be required to seek ‘no objection’ from the Banking Policy and Regulations Department,” said the SBP.

In case any of the bank or DFI has a major issue with any of such solution provider that should also be brought to the notice of this department without further loss of time, said the SBP circular.

Expressing urgency of the situation the SBP said: “All banks and DFIs are advised to ensure strict compliance of the above instructions as any violation thereof would attract punitive action,”

A banker said that it would be difficult for the SBP to keep check on such requirements as the banking industry is a fast growing sector in Pakistan and it requires immediate import of high-tech solutions.

Some bankers said that they were importing cheaper IT solutions and software from India.

“The NOC restriction would create hurdle and the SBP bureaucracy wants a bigger hold on the banking industry,” said a banker not happy with the action taken by the SBP.