Section 20 and 21 of Banking Companies ordinance, 1962. Prohibition of Common Directors and Reserve Fund of Commercial Banks.

1. Banking Companies
Ordinance, 1962.
Section 20 and 21

2. Section 20: Prohibition of
Directors.

3. • —(1) Except with the permission of the State Bank, no banking
company incorporated in Pakistan
shall have as a director any person who is a director—
• (i) of any other banking company; or
• (ii) of companies which among themselves are entitled to
exercise voting rights in excess of twenty per cent of the total
voting rights of all the shareholders of the banking company.

4. • 1 (IA) No banking
company incorporated in
Pakistan shall have as
a director any person
who is—
• (a) a Federal Minister, a
Minister of State or a
Provincial Minister; or
• (b) a person in the
service of Pakistan who
is not appointed
or nominated
by Government as a
director by virtue of his
office.

5. 2) If immediately before the commencement of this
Ordinance any person holding office as a director
of a banking company is also a director
of companies which among themselves are entitled to
exercise voting rights in excess of twenty per cent
of the total voting rights of all the shareholders
of the banking company he shall, within such period
from such commencement as the State Bank may
specify in this behalf—
(a) either resign his office as a director of the
banking company; or
(b) choose such number of companies as among
themselves are not entitled to exercise voting rights
in excess of twenty per cent of the total voting
rights of all the shareholders of the banking company
as companies in which he wishes to continue to
hold the office of a director and resign his office as a
director in the other companies.

6. Section 21: Reserve
Fund.

7. • What is a Reserve Fund?
A reserve fund is a designated pool of money set aside by an organization or entity to address future
expenses, unforeseen events, or to provide a financial cushion.
Purpose/Objective:
Ensuring Liquidity and Financial Stability
Mitigating Financial Risks and Uncertainties.
Components:
Cash Reserves
Marketable Securities

8. What Is Paid-Up
Capital?
• Paid-up capital is the amount of money a
company has received from shareholders in
exchange for shares of stock. Paid-up capital
is created when a company sells its shares
on the primary market directly to investors,
usually through an initial public offering
(IPO).

9. What is Share
Premium
Account?
• Share premium is the excess money
received for issued shares above the par
value. The share premium account is a
reserve account whose funds can only be
used for purposes provided under bylaws
of company.
• Assume that a Company issued 1,000
shares for subscription to the public. The
company assigned the shares a par value
of $10 each, expecting to raise a share
capital of $10,000. Instead, the
shareholders paid a premium price of $15
per share.
• Therefore, the shareholders paid $15 for
each share, the company raised $15,000
in equity capital, out of which $10,000 is
the share capital, and the remaining
$5,000 is the share premium.

10. —(1) Every banking company incorporated in Pakistan shall create a reserve fund
to which shall be credited—
(a) if the amount in such fund together with the amount in the share premium
account is less than the paid-up capital of the banking company, a sum
equivalent to not less than twenty per cent of the balance of profit of each year
as disclosed in the profit and loss account prepared under section 34 and before
any dividend is declared;
Amount in
share premium
account
Amount in
Reserve Fund
Paid-up Capital
Minimum Twenty Percent of Profit of each
year

11. —(1) Every banking company incorporated in Pakistan shall create a reserve fund to
which shall be credited—
(b) if the amount in such fund together with the amount in the share premium account is equal
to or exceeds the paid-up capital of the banking company, a sum equivalent to not less than ten
per cent of the balance of profit disclosed as aforesaid and before any dividend is declared.
Amount in
share premium
account
Amount in Reserve
Fund
Paid-up Capital
Minimum Ten Percent of Profit of each year

12. (2) Where a banking company appropriates any sum or sums from the
reserve fund or the share premium account, it shall, within twenty-
one days from the date of such appropriation, report the fact to the
State Bank explaining the circumstances relating to such
appropriation:
Provided that the State Bank may, in any particular case, extend
the said period of twenty-one days by such period as it thinks fit or
condone any delay in the making of such report.