Lecture # 19
ROLE OF COMMERCIAL BANKING
12. Legal Reforms
Legal difficulties and time delays in recovery of defaulted loans have been removed through
a new ordinance i.e. The Financial Institutions (Recovery of Finances) Ordinance, 2001.
The new recovery laws ensures expeditious recovery of stuck up loans by the right of
foreclosure and sale of mortgaged property with or without intervention of court and
automatic transfer of case to execution proceeding. A Banking LawsReforms Commission
is reviewing, revising, and consolidating the banking laws and drafting new laws such as
bankruptcy law.
13. Taxation
The corporate tax rates on banks were exorbitantly high in Pakistan thus adversely affecting
their profitability and attractiveness as an avenue for investment and new equity injection.
The Government has already reduced the tax rate from 58 percent to 44 percent during the
last three years and it is envisaged that the rate will be reduced gradually and brought at par
with the corporate tax rate of 35 percent in the next three years. This will in turn help in
reducing the spread between the deposit rate and lending rate and benefit financial savers.
14. Agriculture Credit
A complete revamping of Agriculture Credit Scheme has been done recently with the help
of commercial banks. The scope of the Scheme which was limited to production loans for
inputs has been broadened to the whole value chain of agriculture sector.
We have, with the grace of Allah, become a surplus country in food grains, livestock etc.
and thus the needs of agriculture sector have also expanded. The SBP has included
financing for silos, god-owns, refrigerated vans, agro processing and distribution under the
cover of this scheme. This broadening of the scope as well the
removal of other restrictions have enabled the commercial banks to increase their lending
for agriculture by a multiple of four times compared to FY 1999-00 thus mainstreaming
agriculture lending as part of their corporate business. Unlike the previous years when they
were prepared to pay penalties for under performance they have set up higher targets for this
year. The private commercial banks have also agreed to step in and increase their lending to
agriculture.
15. E-Banking
The banks are being encouraged to move towards Electronic banking. There is a big surge
among the banks including NCBs to upgrade their technology and on-line banking services.
During the last three years there is a large expansion in the ATMs has been witnessed and at
present about 500 ATMs are now working throughout the country. The decision mandating
the banks to join one of either two ATM switches available in the country will provide a
further boost. Progress in creating automated or on-line branches of banks has been quite
significant so far and it is expected that by 2004 a majority of the bank branches will be on-
line or automated. Utility billspayment and remittances would be handled through ATMs,
Kiosks or Personal Computers reducing both time and cost. Investment in information
technology is being undertaken by the banks to enhance efficiency, reduce transaction costs
and promote E-Commerce. It has been estimated that a banking transaction through ATM
costs one fourth as much a transaction conducted over the counter in a traditional branch –
docsity.com
