Bangladesh News

The government is going to amend the Bank Company Act 1991 to bring changes in the definition of defaulted loan and double the existing amount of capital for commercial banks.

Finance ministry sources said the Bangladesh Bank (BB) sent a draft proposal of the amendment to the ministry last week.

The draft proposes increasing the capital of commercial banks to Tk 200 crore from the existing Tk 100 crore.

The new definition of defaulted loan in the proposal brings down the overdue period to three months from the current six months.

The definition has been taken in line with suggestions from different international organisations, the draft says.

The central bank’s amendment proposal also includes cutting short the tenure of the board members. It proposes a Tk 20 lakh fine against a bank for breaching the act; the highest fine for such offences is Tk 2,000 now.

Similar amendment proposals were made by the central bank during the immediate past BNP-led government’s rule.

The present chief adviser was the BB governor at that time and the BB had tried to achieve the changes through a regulatory order but failed to implement it due to the court’s stay order.

The legal tangle prompted the BB to go for the legal amendment to turn its regulatory order into a law and an amendment bill was tabled in parliament in 2004. The bill was sent to the parliamentary standing committee on finance ministry for scrutiny.

The bill, however, did not return to the House during the last parliament’s period allegedly because of pressures from the lawmakers of both BNP and Awami League involved in the banking business, sources said.

Finance ministry sources said after taking office Chief Adviser Fakhruddin Ahmed took up the issue as “priority job” to bring discipline in the banking sector, reduce classified loans and increase depositors’ confidence in the sector.

The draft proposes to keep the size of a bank’s board within 13 members. If members of any family has 10 percent share of a bank, two from the family can be its board members, but if the share is less than 10 percent, one member of the family can be the bank’s board member.

None will be allowed to be a member of the board of directors for more than six years in two terms.

The bank is operated by depositors’ money and it needs to ensure good and corporate governance for the depositors’ confidence, the draft says.

A BB official said the business and functions of financial institutions like commercial banks are not similar to other companies and business organisations. He said the depositors’ interest should be safeguarded as their deposits constitute most of a bank’s capital.

Regulators in all developing and developed countries take restructuring measures, downsize boards and appoint directors from among the depositors to protect their interests, he said.

Two banking sector reform committees, both headed by Prof Wahiduddin Mahmud, found a range of irregularities in loan disbursement, insider lending and loans drawn against fake names from commercial banks. In their reports, they also recommended restructuring the boards.