Banking Companies Ordinance, 1962

What it is

The Banking Companies Ordinance, 1962 (Ordinance LVII of 1962) is the charter of banking regulation in Pakistan. It defines what banking business is, requires a licence from the State Bank of Pakistan to carry it on (section 27), prescribes capital and reserve requirements, and restricts the forms of business a banking company may undertake. It arms the State Bank with the supervisory toolkit: inspection (section 40), binding directions (section 41), removal of directors and managerial persons, supersession of boards, moratorium, and schemes of reconstruction and amalgamation, through to winding up [SECTION NUMBERS FOR REMOVAL, MORATORIUM, AND RECONSTRUCTION POWERS — TO BE VERIFIED BY REVIEWING LAWYER].

The Ordinance operates within a wider stack: the State Bank of Pakistan Act, 1956 (substantially amended in 2022 to strengthen the central bank's autonomy), the Deposit Protection Corporation Act, 2016, the Financial Institutions (Recovery of Finances) Ordinance, 2001 for loan recovery, the Offences in Respect of Banks (Special Courts) Ordinance, 1984, and the Anti-Money Laundering Act, 2010. Criminal exposure for bank officers and borrowers typically runs through those laws and the Pakistan Penal Code rather than the Ordinance alone. Microfinance banks are licensed under a separate 2001 ordinance.

What changed

The Ordinance has been amended repeatedly over six decades, often through Finance Acts, and any section relied upon should be checked against the current consolidated text [AMENDMENTS 2023–2025 — TO BE VERIFIED BY REVIEWING LAWYER]. The recent movement is structural. The State Bank's 2022 licensing framework for digital banks brought a new class of licensees under the Ordinance, with the first digital banks moving from in-principle approval toward operations [CURRENT LAUNCH STATUS — TO BE VERIFIED BY REVIEWING LAWYER]. A dedicated bank resolution and deposit-protection reform has been under preparation for several years [STATUS OF RESOLUTION LEGISLATION — TO BE VERIFIED BY REVIEWING LAWYER].

The largest change is constitutional. Following the Federal Shariat Court's 2022 judgment on riba, the Constitution (Twenty-sixth Amendment) Act, 2024 fixed 1 January 2028 as the date by which riba is to be eliminated. As of mid-2026 that deadline is driving conversion planning across the conventional banking sector, under State Bank guidance, and it frames every medium-term product, funding, and documentation decision a bank makes.

Who is affected

Banking companies and their boards, sponsors and prospective acquirers of bank shares, directors and senior executives subject to fit-and-proper vetting, foreign banks operating branches in Pakistan, fintechs seeking digital banking licences, and — indirectly — every depositor and corporate borrower. Counsel advising on bank M&A, enforcement actions, or distressed exposures work inside this Ordinance.

What to do

Acquirers of bank shares should seek State Bank approval before crossing the notified shareholding thresholds and budget real time for fit-and-proper clearance of sponsors and nominee directors [CURRENT THRESHOLDS — TO BE VERIFIED BY REVIEWING LAWYER]. Boards should maintain a live compliance calendar against the Ordinance and the State Bank's prudential regulations, and treat inspection findings under section 40 as matters for documented board response. Institutions holding conventional portfolios should have a written conversion roadmap against the 1 January 2028 riba deadline. Where an exposure is distressed or an enforcement action threatens, engage with the State Bank early and through counsel, and take advice before any public statement touching a bank's solvency.