AMENDING CERTAIN SECTIONS OF REPUBLIC ACT NUMBERED SEVEN HUNDRED TWENTY, OTHERWISE KNOWN AS THE “RURAL BANKS’ ACT”

WHEREAS, there were pending before Congress prior to the
promulgation of Proclamation No. 1081, dated September 21, 1972, urgent
banking measures proposing amendments to Republic Act No. 720, as
amended, entitled “The Rural Banks’ Act” which are essential to the
national development program of the Government;

WHEREAS, an extensive survey and study of the banking and
credit system had been undertaken for the purposes of assessing its
adequacy in Philippine economic growth, and of facilitating the
savings-investment process in development; and

WHEREAS, the result of the survey was an integrated set of
recommendations which were accepted, with modifications by the monetary
authorities, and made the basis of this Decree to enable rural banks to
service the credit needs of small farmers and merchants in rural
communities more effectively;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the
Philippines, by virtue of the powers in me vested by the Constitution as
Commander-in-Chief of the Armed Forces of the Philippines, and pursuant
to Proclamation No. 1081, dated September 21, 1972, and General Order
No. 1, dated September 22, 1972, as amended, and in order to effect the
desired changes and reforms in the social, economic, and political
structure of our society, do hereby order and decree the amendment of
Republic Act No. 720, as amended, as follows:

SECTION 1. Section four of Republic Act Numbered Seven
hundred twenty is hereby amended to read as follows:

“SEC. 4. No Rural Bank shall be operated without a
Certificate of Authority of the Monetary Board of the Central Bank.
Rural Bunks shall be organized in the form of stock corporations. Duly
established cooperatives and corporations primarily organized to hold
equities in Rural Banks within a defined region, provided any such
corporation is at least partly owned by residents of that particular
region, may organize a Rural Bank and/or subscribe to the shares of
stock of any Rural Bank. With the prior approval of the Monetary Board,
the extent of the equity investment in any Rural Bank of corporations
contemplated under this section shall not be subject to any Limitation,
the provisions of existing laws to the contrary, notwithstanding. One
hundred per cent of the capital stock of any Rural Bank shall be owned
and held directly or indirectly by citizens of the Philippines: Provided,
however, That if said subscription of private shareholders to the
capital stock of a Rural Bank cannot be secured or is not available, the
Development Bank of the Philippines, on representation of the said
private shareholders, and upon approval of the Monetary Board of the
Central Bank, shall subscribe to the capital stock of such Rural Bank,
which shall be paid in full at the time of subscription, in an amount
equal to the fully paid subscribed capital of the private shareholders
but not exceeding one million pesos: Provided, further, That
such shares of stock subscribed lay the Development Bank of the
Philippines may be sold at any time at par to private individuals who
arc citizens of the Philippines: Provided, finally, That in the
sale of shares of stock subscribed by the Development Bank of the
Philippines, the registered stockholders shall have the right of
pre-emption within one year from the date of offer in proportion to
their respective holdings, but in the absence of such buyer, preference,
however, shall lie given to residents of the locality or province where
the Rural Bank is located. All members of the Board of Directors of the
Rural Bank shall be citizens of the Philippines: Provided, however,
That no full-time appointive or elective public official shall at the
same time serve as officer, director, legal counsel or consultant of any
Rural Bank except in cases where such service is incident to financial
assistance provided by the Government or a government-owned or
controlled corporation to the bank.”

SEC. 2. Section five of the same Act is hereby amended to
read as follows:

“SEC. 5. Loans or advances extended by Rural Banks,
organized and operated under this Act, shall be primarily for the
purpose of meeting the normal credit needs of any small farmer or farm
family owning or cultivating, in the aggregate, not more than fifty
hectares of land dedicated to agricultural production as well as the
normal credit needs of cooperatives and small merchants. For the
purposes of this Act, a small merchant shall be one whose capital
investment does not exceed fifty thousand pesos. In the granting of
loans, the Rural Bank shall give preference to the application of
farmers and merchants whose cash requirements are small.

“Loans may be granted by Rural Banks on the security of lands
without Torrens titles where the owner of private property can show five
years or more of peaceful, continuous and uninterrupted possession in
the concept of an owner; or of portions of friar land estates or other
lands administered by the Bureau of Lands that are covered by sales
contracts and the purchasers have paid at least five years installment
thereon without the necessity of prior approval and consent by the
Director of Lands; or of portions of other estates under the
administration of the Land Authority or other governmental agency which
are likewise covered by sales contracts and the purchasers have paid at
least five (5) years installment thereon, without the necessity of prior
approval and consent of the Land Authority or corresponding
governmental agency; or of homesteads or free patent lands pending the
issuance of titles but already approved, the provisions of any law or
regulations to the contrary notwithstanding; Provided, That
when the corresponding titles arc issued the same shall be delivered to
the register of deeds of the province where such lands are situated for
the annotation of the encumbrance: Provided, further, That in
the case of lands pending homestead or free patent titles, copies of
notices for the presentation of the final proof shall also be furnished
the creditor rural bank, and, if the borrower applicants fail to present
the final proof within thirty (30) days from date of notice, the
creditor rural bank may do so for them at their expense: Provided,
furthermore, That the applicant for homestead or free patent has
already made improvements on the land and the loan applied for is to be
used for further development of the same or for other productive
economic activities: Provided, finally. That the appraisal and
verification of the status of a land is the full responsibility of the
rural bank and any loan granted on any land which shall be found later
to be within the forest zone shall be for the sole account of the rural
bank to the exclusion of the Central Bank counterpart.

“The foreclosure of mortgages covering loans granted by rural
banks shall be exempt from the publication in newspapers now required by
law where the total amount of loan, including interests due and unpaid,
does not exceed three thousand pesos (P3,000.00). It shall be
sufficient publication in such cases if the notices of foreclosure are
posted in at least three of the most conspicuous public places in the
municipality and barrio where the land mortgaged is situated during the
period of sixty days immediately preceding the public auction. Proof of
publication as required herein shall be accomplished by affidavit of the
sheriff or officer conducting the foreclosure sale and shall be
attached with the records of the case: Provided, That when a
homestead or free patent land is foreclosed, the homesteader or tree
patent holder, as well as their heirs shall have the right to redeem the
same within two years from the date of foreclosure in case of a land
not covered by a Torrens title or two years from the date of the
registration of the foreclosure in the case of a laud covered by a
Torrens title: Provided, finally, That in case of borrowers who
are mere tenants the produce corresponding to their share may be
accepted as security.”

SEC. 3. Section six of the same Act is hereby amended to
read as follows:

“SEC. 6. With the view to insuring balanced rural
economic growth and expansion, Rural Banks may, within limits and
conditions fixed by the Monetary Board, devote a portion of their
loanable funds to meeting the normal credit needs of small business
enterprises whose capital investment does not exceed fifty thousand
pesos and of essential rural enterprises or industries, other than those
which are strictly agricultural in nature.”

SEC. 4. Section seven of the same Act is hereby amended to
read as follows:

“SEC. 7. To provide supplemental capital to any Rural
Bank until it has accumulated enough capital of its own or stimulate
private investments in Rural Banks, the Development Bank of the
Philippines shall, upon certification of the Monetary Board which shall
be final, of the existence of such need, subscribe within thirty days to
capital stock of any Rural Bank from time to time in an amount equal to
the total equity investment of the private shareholders which shall be
paid in full at the time of subscription but not exceeding one million
pesos: Provided, however, That shares of stock issued to the
Development Bank of the Philippines, pursuant to this section, may, at
any time, be paid off at par and retired in whole or in part if, in the
opinion of the Monetary Board, the Rural Bank has accumulated enough
capital strength to permit retirement of such shares; or if an offer is
received from private sources, to replace the equity investments of the
Development Bank of the Philippines with an equivalent investment or
more in the common stock of such Bank. In case of such retirement of
stock or replacement of equity investments of the Development Bank of
the Philippines, the registered private shareholders of the Rural Bank
shall have the right of pre-emption within one year from date of offer
in proportion to their respective holdings.

“Stock held by the Development Bank of the Philippines, under
the terms of this section, shall be made preferred only as to assets
upon liquidation and without the power to vote and shall share in
dividend distributions not exceeding two per cent thereof without
preference: Provided, however, That if such stock of the
Development Bank of the Philippines is sold to private shareholders, the
same shall be converted into common stock of the class provided for in
Section nine.”

SEC. 5. Section ten of the same Act is hereby amended to
read as follows:

“SEC. 10. The power to supervise the operation of any
Rural Bank by the Monetary Board of the Central Bank as herein
indicated, shall consist in placing limits to the maximum credit allowed
any individual borrower; in prescribing the interest rate; in
determining the loan period and loan procedures; in indicating the
manner in which technical assistance shall be extended to Rural Banks;
in imposing a uniform accounting system and manner of keeping the
accounts and records of the Rural Banks; in undertaking regular credit
examination of the Rural Banks; in instituting periodic surveys of loan
and lending procedures, audits, test-check of cash and other
transactions of the Rural Banks; in conducting training courses for
personnel of Rural Banks; and, in general, in supervising the business
and corporate operations of the Rural Banks.

“The director of the Department of the Central Bank designated
by the Monetary Board to supervise Rural Banks shall have the power to
enforce the laws, orders, instructions, rules and regulations
promulgated by the Monetary Board applicable to Rural Banks; to require
Rural Banks, their directors, officers and agents to conduct and manage
the affairs of the Rural Bank in a lawful and orderly manner; and, upon
proof that the Rural Bank or its board of directors or officers arc
conducting and managing the affairs of the bank in a manner contrary to
laws, orders, instructions, rules and regulations promulgated by the
Monetary Board or in a manner substantially prejudicial to the interests
of the government, depositors or creditors, to take over the management
of such bank when specifically authorized to do so by the Monetary
Board after due hearing until a new board of directors and officers are
elected and qualified without prejudice to the prosecution of the
persons responsible for such violations under the provisions of Sections
thirty-two, thirty-three and thirty-four of Republic Act Numbered Two
hundred sixty-five, as amended (The Central Bank Act).

“The management of the Rural Bank by the Central Bank shall be
without expense to the Rural Bank except such as is actually necessary
for its operation, pending the election and qualification of a new board
of directors and officers to take the place of those responsible for
the violations or acts contrary to the interests of the government,
depositors or creditors.”

“The director and the examiners of the Department of the Central
Bank charged with the supervision of Rural Banks are hereby authorized
to administer oaths to any director, officer or employee of any Rural
Bank or to any voluntary witness and to compel the presentation of all
books, documents, papers or records necessary in his or their judgment
to ascertain the facts relative to the true condition of any Rural Bank
or to any loan.”

SEC. 6. A new section is hereby added after Section eleven
of the same Act to read as follows:

“SEC. 11-A. Rural Banks may invest in equities of allied
undertakings, except banks, as may be approved by the Monetary Board: Provided,
That (1) the total investment in equities shall not exceed twenty-five
per cent of the net worth of the Rural Bank; (2) the equity investment
in any single enterprise shall be limited to fifteen per cent of the net
worth of the Rural Bank, and (3) the equity investment of the Rural
Bank in any single enterprise shall remain a minority holding in that
enterprise except where the enterprise is not a financial intermediary: Provided,
further, That where such allied undertaking is a wholly or
majority-owned subsidiary of a Rural Bank, the same may be subject to
examination by the Central Bank: Provided, finally, That equity
investments shall not be permitted in non-related activities.”

SEC. 7. Section thirteen of the same Act is hereby amended
to read as follows:

“SEC. 13. In an emergency or when a financial crisis is
imminent, the Central Bank may give a loan to any Rural Bank against
assets of the Rural Bank which may be considered acceptable by a
concurrent vote of at least five members of the Monetary Board.”

“In normal times, the Central Bank may rediscount against paper
evidencing a loan granted by a Rural Bank to any of its customers which
can be liquefied within a period of three hundred sixty days: Provided,
however, That for the purpose of implementing a nationwide program
of agricultural and industrial development, Rural Banks are hereby
authorized, under such terms and conditions as the Central Bank shall
prescribe, to borrow, on a medium or long-term basis, funds that the
Central Bank or any other government financing institution shall borrow
from the International Bank for Reconstruction and Development or other
international or foreign lending institutions for the specific purpose
of financing the above-stated agricultural and industrial program.
Repayment of loans obtained by the Central Bank of the Philippines or
any other government financing institution from said foreign lending
institutions under this section shall be guaranteed by the Republic of
the Philippines.”

SEC. 8. Section sixteen of the same Act is hereby amended to
read as follows:

“SEC. 16. Any city or municipal judge in his capacity as
notary public, ex officio shall administer the oath to or acknowledge
the instruments of any Rural Bank and its borrowers or mortgagors, free
from all charges, fees and documentary stamp tax, collectible under
existing laws, relative to any loan or transaction not exceeding five
thousand pesos.”

SEC. 9. Section seventeen of the same Act is hereby amended
to read as follows:

“SEC. 17. Any register of deeds shall accept from any
Rural Bank and its borrowers or mortgagors for registration, free from
all charges, fees, and documentary stamp tax, collectible under existing
laws, any instrument, whether voluntary or involuntary, relating to
loans or transactions extended by a Rural Bank in an amount not
exceeding five thousand pesos: Provided, however, That charges,
if any, shall only be collectible on the amount in excess of five
thousand pesos; and that in instruments related to assignments of
several mortgages consolidated in a single deed, charges or fees, if
any, shall be levied only on the amount in excess of five thousand pesos
of the consideration in the assignment of each mortgage.”

SEC. 10. Section eighteen of the same Act is hereby amended
to read as follows:

“SEC. 18. Any Rural Bank organized under this Act may,
pursuant to regulations promulgated for the purpose by the Monetary
Board, be required to contribute to the Central Bank an annual fee to
help defray the cost of maintaining the appropriate supervising
department within the Central Bank in an amount to be determined by the
Monetary Board but in no case to exceed one twentieth of one per cent
(1/20 of 1%) of its average total assets during the preceding year, as
shown on its end-of-month balance sheets, after deducting its cash on
hand and amounts due from banks, including the Central Bank.”

SEC. 11. Section twenty-seven of the same Act is hereby
amended to read as follows:

“SEC. 27. The provisions of Republic Acts Numbered Two
hundred and sixty-five as amended, and Three hundred thirty-seven, as
amended, insofar as they are applicable and not in conflict with any
provision of this Act, are hereby made a part of this Act.”

SEC. 12. This Decree shall take effect immediately.

Done in the City of Manila, this 29th day of January, in the
year of Our Lord, nineteen hundred and seventy-three.