Draft amendments to Banking Companies Act almost ready

FE Report (June 15, 2011)

The central bank has initiated a move to reduce the influence of individual families on banks' boards, a senior Bangladesh Bank (BB) official said.

"We are considering necessary amendment to the Banking Companies Act, 1991 so that more than two members of a family cannot be on the board of directors of a banking company," the BB executive director Jahangir Alam told the FE Wednesday.

Presently, the Banking Companies Act does not allow a family or a company to hold more than 10 per cent share of a bank at a time. However, the amendment is not considering to bring any change in this particular provision, he said.

The draft of the proposed amendments, which is likely to be submitted to the Ministry of Finance (MoF) within this month, is also considering tagging a clause regarding the exposure of banks in the capital market with their equity instead of depositors' money.

"Banks won't be allowed to invest depositors' money in the stock market. Only a portion of their paid-up capital can be invested in the capital market, but the amount is yet to be fixed," said Mr Alam, who is leading the team drafting the amendment.

"We are also working on changing the definition of capital," he said without elaborating.

According to the present Banking Companies Act, if any company of a group becomes defaulter the group is considered defaulter. The proposed amendment is likely to consider the specific company defaulter, not other members of the group, sources said.

The draft of the proposed amendment, which is almost at the final stage, is going to propose the maximum number of directors at 20 instead of the present 30 to 40. The existence of a large number of directors proves to be a barrier to proper governance of the bank, as most of them try to influence loan sanction and other processes, an official said.

The amendment is likely to propose empowerment of the central bank to penalise individuals and organisations directly instead of going to courts for the same. At present offenders take legal protection to save themselves from punishment, and the regulator becomes helpless.

Sources said the draft amendment may propose formation of a central financial regulatory authority, comprising all the financial regulatory bodies, including the BB, the insurance authority, the micro-credit authority and the Securities and Exchange Commission to help monitor the banks' exposures to other areas.

The draft is likely to bring changes to Section-35 of the Act, allowing more than one person as nominee of an account holder.

The BB has been working on the amendment to the Banking Companies Act during the last one year, following the promulgation of an ordinance by the last caretaker government.