The existing law regulating our banking sector namely, the Bank Companies Act, 1991 (the “1991 Act”) was last amended in 2003. Since then, the banking sector has undergone significant changes in both national and international banking, particularly in cross border banking supervision, although the existing banking laws in Bangladesh failed to reflect those changes. Therefore, recently, the government of Bangladesh has decided to introduce further amendments to the 1991 Act in an attempt to modernize the existing law and to incorporate provisions that the 1991 Act was previously silent about.
On 18th March 2013, the cabinet, in a regular weekly meeting held at the Bangladesh Secretariat, finally approved the draft of the Bank Company (Amendment) Bill, 2013 (the “Draft Amendments”) which was duly vetted by the Law Commission earlier in that month. The aim of the Draft Amendment is, inter alia, to control the input of the banks in capital market, to further protect the interest of the small investors, to prevent illegal banking by cooperatives, to limit the number of directors of a bank, to clarify the position of loan defaulters and to widen the scope of loan defaults in future.
The 1991 Act was previously silent on the number of directors that can be appointed by a bank. As per the Draft Amendments, the number of total directors of a bank has been limited to 20 for private commercial banks and 13 for state-owned commercial banks. This includes four independent directors. The director of a bank can serve as the director for a maximum of 2 (two) successive terms of 3 (three) years each. A director can serve further after a gap of minimum of 1 (one) term; however, the same person cannot be the director of more than 1 (one) financial institution.
Under Section 26(A) of the Draft Amendments, no bank will be able to buy shares of a company amounting to more than 10% of the company’s paid-up capital and more than 5% of the company’s total market borrowings. The Draft Amendments also have a provision of maximum BDT 20 lakh as fine for investing more than 10% of the paid up capital in the share market by the banking companies. In the event of continued violation of this provision, another BDT 50,000 per day will be charged as fine from the second day of such violation.
The Draft Amendments will attempt to ensure that no one can commit fraud by using the term “bank”. It will also ensure that no one runs banking activities in the name of a cooperative society. Further, if any non-banking organisation collects deposits from the public, such organisations will be required to obtain the necessary approval from the Bangladesh Bank. The Bangladesh Bank will also monitor the activities of these organisations and take punitive measures against them, if any irregularity is detected.
Under the existing laws, the power of removing the chairmen, directors and other high officials, including the managing directors of state-run and specialised banks are in the hands of the government. The Draft Amendments empower the Bangladesh Bank to remove any chief executive officer of the state banks. However, the Draft Amendments have not introduced any changes in the areas of Sharia banking or in the regulations for Islamic banks.
The full text of the Draft Amendments is yet to be publicly available. The true effects of the Draft Amendments will only be truly appreciated once it comes into effect.
Written by Junayed Chowdhury, Managing Partner
† Disclaimer: The opinions and comments expressed in this Blawg are not to be regarded or construed as legal advice by and from Vertex Chambers or any of its members. It is highly advisable that any person should seek independent legal advice before relying on any of the contents of this Blawg.