KARACHI, Jan 28: State Bank Governor Dr Ishrat Hussain announced on Wednesday the formation of a Banking Laws Reform Commission to frame a law after reviewing all the banking related laws.

The governor was presiding over a seminar on: ‘The Reform of Bankruptcy and Insolvency Laws and Procedures’, organized by the Federation of Pakistan Chambers of Commerce and Industry on Monday. In his inaugural remarks he said that the draft of the proposed law would be circulated to elicit views of all the stakeholders before enforcing it.

Six speakers including two top bankers Ali Reza of NBP and Zakir Mahmood of HBL, Rafique Dawood, chief executive of a private leasing company, Nafees Siddiqui a senior corporate lawyer, two business leaders, Wajid Jawwad and Nadeem Maqbol, chairman of Aptma and the Chairman of the FPCCI Standing Committee on Banking and Credit and Finance Dr Ikhtiar Baig made their presentations.

The FPCCI president, Iftikhar Ali Malik, in his address of welcome pointed out that no information of bankruptcies available in Pakistan unlike Japan where insolvencies are reported regularly.

The SBP governor outlined four ground rules on the basis of which the proposed bankruptcy and insolvency law would be framed. The first and foremost rule, he spelt out, was that “profits are not to be privatized, and losses should not be socialized.”

When you earn profit he said all stakeholders have to be given their shares. In case of losses do not run to official agencies to seek concessions. In business you earn profit and make losses and learn to live with both profit and loss.

“Share a part of your profit with the government as tax,” he gave the second rule stating that government functions for the good of the people and need money.

“Reinvest your profit in business to expand it to create more employment and generate economic services,” he outlined the third ground rule declaring that business profit is the society’s income, which should not be stashed in foreign countries.

And lastly he said profit should be earned in a competitive environment in which an even playing field is available to all. “The government should have no favourites and no opponents in business,” he declared and hence so special SROs to support favourites and oppose others.

Bankruptcies and insolvencies are inevitable in any competitive environment. Old ventures die and new ventures are created. He said that there is a plethora of laws on bankruptcies but without any supporting infrastructure and hence they remain ineffective.

Rigorous auditing standards for the corporate and banking sectors and adoption of forensic accounting in the business, now non-existent in Pakistan, he said, are the supporting infrastructure.

Dr Hussain urged for appointing specialized receivers and adequate training of judges in the corporate and banking laws for quick disposal of cases.

He called for a shift from family owned business to corporate structure and adoption of professional approach in business which he said would check bankruptcies and insolvencies.

He outlined a three-point new strategy, in which all government banks are to be privatized, consolidation of private banking by way of mergers and acquisitions and a regulatory framework that should ensure a level-playing field for all. The FPCCI president lauded the SBP role for bringing down the export refinancing rate to 8.5 per cent.

Earlier the NBP President Ali Reza in his paper made an indepth review of all the banking related laws and lacunas causing problems.

One of his proposals, that he deliberately skipped in reading, suggested greater accessibility of the National Accountability Bureau to banks and financial institutions invited a flurry of angry remarks from the businessmen.

Ali Reza said that banks were taking up restructuring and rescheduling of loans of a large number of sick industrial units, which obviously means that genuine borrowers who suffered because of circumstances are being taken care of. He said new money has been injected in many cases.

Zakir Mahmood of the HBL outlined the future strategic direction of the financial sector making it clear that innovative ways of industrial financing will have to be worked out to meet the demand for working capital and fixed investment.

Nafees Siddqui, a noted corporate lawyer, proposed the setting up of corporate law tribunals for expeditious disposal of the company cases. These tribunals should replace the company judges appointed by the high courts.

He also proposed the creating of ‘winding up companies’ in private sector parallel to the public sector Corporate and Industrial Restructuring Corporation (CIRC). But these companies, he explained, should not be used as coercive tools and should be taken as last resort.

A press release of the FPCCI said that the seminar recommended maximum lending rate be brought down to 12 per cent by taking out the non-performance loans. The NPLs, it suggested be transferred to the CIRC.

Banks have been advised to invoke section 295 of the Companies Act before going for any litigation or asking NAB to take action.

Final set of the recommendations of the seminar will be drafted by a Committee headed by the FPCCI President includes Dr Baig, Wajid Jawwad, Tariq Sayed and Nafees Siddiqui.