The government will start its efforts to bring banks' stockmarket exposure down to the permissible limit two years before the schedule of 2016, in keeping with the pledges made to the International Monetary Fund.
The amended Banking Companies Act (BCA), which was passed in July 2013, stipulates that banks cannot invest more than 25 percent of their total capital in stocks.
However, the central bank gave them until July 2016 to bring down their exposure, as the government did not want to impose the new limit right away lest the market became volatile. Now, the government has instructed Bangladesh Bank to initiate the process.
The move comes after the government made a host of promises to the IMF board in May, based on which the multilateral lender last week made available about $141 million for Bangladesh under its three-year Extended Credit Facility of about $987 million.
“For banks currently with stockmarket exposure above the permissible limit, BB will strictly monitor that the current exposures in nominal taka terms will not be increased and strictly enforce a steady reduction in their investments within the three-year period allowed in the BCA,” said the paper by the finance ministry to the IMF.
As of December 2013, the stockmarket exposure of banks and their subsidiaries were abnormally high: on average, it was 50 percent of their capital, and for many, it was as high as 150 percent.
The paper also spelt out a number of measures the government will focus on to strengthen governance, credit risk management and balance sheets of state-owned commercial banks, which have become an Achilles heel for taxpayers.
In one of the measures, the central bank will assess, by December 2014, the conformity of the banks with their recently approved internal control and compliance policies.
The government will also be tough on the implementation of the central bank's memorandum of understandings with the state banks to improve the latter's performance.
“We will impose strong sanctions provided for in the MoUs in case of non-compliance, particularly regarding areas which are directly under the control of banks, such as credit growth ceilings and limits on single borrower exposures and related lending.”
The paper said if any bank breaches the credit growth ceiling, BB will order the lender to deposit the entire excess amount lent over the credit limit.
The relaxed loan rescheduling guidelines, introduced in December 2013 to help borrowers ride out the impacts of last year's political unrest, will not be extended beyond June 2014, it said. To ensure proper utilisation of the temporary policy and prevent the possibility of misuse, BB will order banks to issue quarterly status reports on the restructured loans and monitor the reports.
BB will also verify the rescheduled loan accounts and inspect them on a case-by-case basis to ensure compliance with the central bank's approval conditions.   
If any restructured loan is defaulted on, BB will instruct that it be classified adversely and the required provision be made. Banks have rescheduled loans about Tk 14,000 crore as of March this year under the facility.