The proposed Bank Company (amendment) Act (BCA), 2012 seeks to restrict the maximum number of directors of a bank company to 13, fix the maximum tenure of a director for three years and abolish the provision of independent directors on bank boards.

The Bangladesh Bank (BB) has recently prepared the draft of the act and submitted the same to the Ministry of Finance (MoF) to complete the necessary formalities.

Justifying the proposal for the abolition of the provision for independent bank directors, the BB said the necessity of being an independent director on a bank board is met through securities law. In order to establish good governance in the banking sector, the number of bank directors should be limited, it added.

The BCA, 1991 stipulates that a bank company could appoint as many as two bank directors on its board among the depositors.

However, clause 15(5) of BCA, 1991 did not make this provision mandatory for any bank. But the securities law, a top banker in the BB said, has made it mandatory.

"The provision of independent director on the bank board stipulated in the Securities and Exchange Commission (SEC) law is enough to serve the interest of bank depositors," said the BB in support of its proposed abolition of the provision relating to independent directors.

Furthermore, the amendment to the BCA, 2012 has proposed not to appoint more than one director in a bank at a time from a single family to contain the family influence on banking companies. The present BCA, 1991 has no such provision.

According to the proposed amendment, the maximum tenure of a bank director has been fixed at three years. The provision, however, will not be applicable to the managing directors of banks, who are also considered as bank directors.

The current provision under the BCA, 1991 allows bank directors to serve up to six years in two consecutive terms.

Senior bankers in the BB said the current provision on tenure of bank directors has a number of flaws that create scopes for enjoying extra facilities by sponsor directors of a bank company.

They said due to the absence of any stringent and specific provision on number of bank directors, many commercial banks even has 30 directors on their respective boards giving rise to indiscipline in the banking sector.

"Most of the proposals included in the proposed act are similar to those of the BCA (Ordinance), 2008, which was not endorsed duly by the current parliament," a top BB official told the FE.

"We have prepared the draft amendment to the Bank Company Act after intensive consultations with stakeholders including bankers, International Monetary Fund (IMF) and the World Bank (WB)," he added.

The Ministry of Finance (MoF) is now busy scrutinising the amendment proposals of the BB, sources said.

Officials in the MoF said they have formed a high-powered committee, headed by former Secretary, Abdul Mubin, to scrutinise the proposed amendments. After the examination is completed, the amendment would be placed before the cabinet and than before the parliament.

"Amending act is a necessity as the IMF has asked to amend the BCA, 1991 to become eligible for proposed $1.0 billion loan under its Extended Credit Facility (ECF)," a high finance ministry official told the FE.

Financial Express/Bangladesh/ 26th March 2012