Author: Faisal Shahnawaz

KARACHI: State Bank of Pakistan (SBP) on Friday directed banks to maintain depositor-wise database in order to ensure reimbursement to genuine protected depositors.

The SBP in a circular invited the attention of banks on Deposit Protection Corporation Act, 2016 (the Act) and DPC Circular No. 04 dated June 22, 2018 on Deposit Protection Mechanism for Banking Companies.

The central bank said that Deposit Protection Corporation (DPC) shall pay the guarantee amount to the protected depositors of a member bank in accordance with stipulations under Section 21 of the Act, on a per-depositor per-bank basis.

Therefore, in order to ensure that the payment of guarantee amount (reimbursement) to genuine protected depositors becomes a seamless process, the timely availability, integrity and reliability of depositors’ information maintained with banks is of utmost importance.

In view of the above, all member banks are advised to appropriately install or update their systems including software(s)/ database(s) for maintaining a comprehensive depositor-wise database.

Such database must have the ability to identify, on any given date, all the accounts of any single depositor and calculate the total liability of a bank towards that depositor (including any interest/ profit accrued on his/ her deposits).

This Management Information System (MIS) will be used by DPC in the event of reimbursement at any given cut-off date.

Single depositor view shall be achieved, preferably by using a Unique Identification Number that, in case of individuals’ accounts, should also be linked to their Computerized National Identity Cards (CNIC)/ Smart National Identity Cards (SNIC)/ National Identity Card for Oversees Pakistanis (NICOP).

In addition to identifying all the protected deposit accounts on the required MIS, each member bank is expected to be able to provide information with at least following basic features:

a) generate data of protected depositors after separately identifying all ‘Exceptions’ given in Section 8 of the Act read with DPC’s Circular Letter No. 01 of 2018;

b) for foreign currency deposits, the outstanding liability(ies) of the member bank towards each protected depositor, should be convertible to local currency deposits on any given date by feeding a given currency conversion rate into the system;

c) for a joint account, any outstanding amount should be split between the account holders according to the terms of account opening or equally (in absence of any such terms). In case the deposit is being maintained in favour of one or more third party(ies), the beneficiaries of such deposit shall be identifiable with share of each beneficiary;

d) for such depositors having one or more accounts in both Conventional and Islamic Banking operations of any member bank, the MIS should be able to calculate;

i. the total liability of the bank towards such depositor(s),

ii. separate accumulated liabilities of Conventional and Islamic banking operations of the bank towards that depositor, and

iii. In case of any combination of deposits as mentioned above, the system should proportionately distribute the guarantee amount so payable (based on the amount of total deposits in respective operations) between outstanding liabilities of Conventional and Islamic operations of the member bank.

e) as stipulated under Section 20(4) of the Act, any depositor(s) that have their deposits placed under any encumbrance or as collateral should be separately identified along with such deposits/ accounts;

f) any deposits that are marked as frozen, blocked or dormant or are under any sort of legal action by the order(s) of the court or are under investigation by any investigation agency through a formal communication to the bank shall also be separately identified and reported by the system.

Based on any or all of the above factors, the system should identify the total payable amount on the basis of total liability towards each protected depositor by applying the formula of total liability of the bank towards each depositor and the guarantee amount (pronounced by the Corporation from time to time), whichever is less.

The system should be able to generate a separate report assuming the adjustment of guarantee amount payable in the manner prescribed in ‘Para 6’ above and should adjust and settle one or more accounts of each protected depositor by making full settlement of the smallest deposit balance first and moving to the largest deposit(s) of the same depositor.

Finally, the system should be able to update the information on daily basis and all changes and updates made in the depositors’ information shall be logged. The system’s readiness and efficacy should be tested at regular intervals by the relevant department(s) under the operational risk framework of each bank and also under Business Continuity Planning (BCP) exercise.

The compliance of the above instructions should be scrutinized by the internal audit of banks. SBP inspection shall assess the system’s readiness and compliance of the overall deposit protection framework.

Moreover, in case of any eventuality, the bank should be able to generate and provide the afore-mentioned information within a maximum time period of 48 hours of the issuance of notification under Section 21 of the Act.

In light of the foregoing, all member banks are advised to update their systems accordingly, latest by June 30, 2019 and report the compliance to DPC. Further, all member banks are advised to provide a roadmap/ action plan indicating how they will progress towards above mentioned timeline; and such roadmap must be submitted to DPC latest by April 08, 2019.

The banks are also required to report the position of depositors (on single depositor-wise basis) to DPC as per enclosed formats, as of June 30, 2019 by July 31, 2019; and onwards on quarterly basis within one month following each quarter-end.