Govt. to enact Banking (Special Provisions) Act by December
View(s):The Government is to enact the Banking (Special Provisions) Act by December this year following the approval of the cabinet of Ministers in June, Finance Ministry sources confirmed.
The introduction of this new Act is deemed necessary as there is an urgent need to strengthen financial sector supervision and safety nets as well as enhance crisis management capacity, a high ranking Ministry official disclosed.
The Act will strengthen banking resolution tools for the Central Bank to deal with potential bank failures in an efficient manner with clear legal mandates and improved funding arrangements.
A full revision of the Banking Act is underway and it will strengthen the resolution authority, mandate, and powers of the Central Bank as well as the deposit insurance framework and the regime for liquidation of financial institutions.
The Act will provide provisions to strengthen regulatory standards in areas including bank licensing, bank ownership, consolidated supervision, the capital and liquidity framework, large exposures and related party transactions, governance requirements, and recovery planning and early intervention powers.
He disclosed that the CB’s emergency liquidity assistance (ELA) framework has also been updated. The regulatory and governance framework for state-owned banks will also be strengthened.
The International Monetary Fund and World Bank has recommended strengthening the bank resolution framework.
The Banking Act will ensure that the state-owned banks meet the same regulatory requirements as private banks, including on large exposures, related party lending, and governance.
The Act will include binding time-bound transition periods for the reduction of existing large exposures to SOEs.
In parallel with broader reforms to SOE governance, the framework for appointment of directors and senior managers for state-owned Licensed Commercial Banks and Licensed Specialised banks will be changed to ensure that nominees are independent and possess appropriate professional experience.
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