The first major step to implement much-needed reforms in the Iranian banking sector is to be taken by the government in summer when it submits the Banking Reform Bill to the Parliament, the governor of the Central Bank of Iran said.
“It is predicted that the Banking Reform Bill will be sent to Majlis by the end of the [third Iranian month of] Khordad [June 21],” Valiollah Seif was also quoted as saying by IBENA.
According to the official, the bill is currently undergoing verifications by President Hassan Rouhani’s Cabinet.
The Banking Reform Bill is the new moniker given to regulations that are to replace the current Usury-Free Banking Law. The last amendments to the Usury-Free Banking Law were made in 1983 while the law itself specifies that reviews are needed every five years.
Many problems of the beleaguered banking system and calls for improving the efficiency of lenders prompted the government to prepare its own Banking Reform Bill after the previous parliament failed to pass a controversial bill criticized by the government and banks.
As outlined by Seif, the Cabinet has decided to send the Banking Reform Bill in fits and starts, and the first part to be sent is a section concerning CBI supervision over the banking system.
The Banking Reform Bill outlines the duties of banks and non-bank credit institutions in obtaining a working license from CBI. It explains all banking operations and services, sets regulations for the establishment of branches pertaining to foreign banks and sets limits to their investments.
It also obliges credit institutions to provide viable information, puts in place a professional set of criteria for choosing new top executives and board members and makes provision for setting up internal risk and auditing committees.
Defining banking contracts and the legal status of the newly-formed Association of Banks, launching credit rating institutions and detailing lending and capital adequacy rules are among other articles of the bill.
The head of Majlis Economic Commission also announced that the parliament is working on its own version of the bill, saying the updated version of the Usury-Free Banking Law will be ready for review in an open parliamentary session “by the end of the first half of summer”.
According to Mohammad Reza Pour-Ebrahimi, 20 expert meetings have so far taken place to analyze the bill and 40% of it have been reviewed. These reviews will reportedly be finalized “within two months” in the commission.
As the official had previously announced, parts of the bill are concerned with Islamic finance and Sharia compliance, which have been devised to “Islamicize banking affairs and make them conform to Islamic principles”.
Noting that the way banks absorb resources would undergo changes, the lawmaker said “major changes” are in store for a variety of deposits, loans and loan allocation.
According to Pour-Ebrahimi, the bill also includes the formational of a jurisprudential council that will supervise the performance of banks. It was previously announced that the body would comprise the governor of Central Bank of Iran, his deputy for supervisory affairs, five Muslim theologians with expertise in banking and monetary issues and one legal expert.
Originally published on www.financialtribune.com