The government has formed a seven-member committee for preparing recommendations on amending the Bank Company Law, 1991, for ensuring good governance in the sector.

The committee will submit its recommendations to the banking division within two months.

The banking division issued a circular in this regard on Tuesday, a senior official of the banking division said.

The official also said the banking division formed the committee incorporating advices from businessmen and bankers to make the law more business-friendly.

The circular signed by deputy secretary of banking division M Rajanul Huda was sent to the Bangladesh Bank.

The committee headed by retired secretary AK Abdul Mubin as convenor comprises additional secretary of banking and financial institution division, executive director of BRPD of Bangladesh Bank, two representatives of FBCCI, one representative of Bangladesh Tax Lawyers’ Association, and deputy secretary of banking division as members.

According to the terms of references, the committee will recommend amendments to the Company Law 1991 in line with Bangladesh Bank’s proposed Company Law 2012.

The committee may co-opt banking experts, if necessary and the committee will hold meetings according to its requirement, the circular said.

As per the terms of references, the committee will submit its report to the banking division within two months. Banking and financial institutions division will provide secretarial assistance to the committee, according to the circular.

Finance ministry official said the central bank sent the 75-page proposal to the banking division last week. The BB has proposed extensive amendments to the banking law, including adjustment to the definition of default loan and lender’s involvement in the capital market.

In line with the proposal, the central bank will have to have the rights to make public any information regarding loan defaulters in any form.

The existing law does not explicitly allow this disclosure.

The initiative to amend the Banking Companies Act was taken during the immediate past tenure of the BNP government. But it could not be realised as various influential quarters opposed it.

Even during the immediate past caretaker government, a law was promulgated through an ordinance but after the present government assumed power, the ordinance did not get passage in the parliament.

As per the existing rules, if any loan remains overdue for six months, it is identified as default loan. The proposal said the BB will have the authority to redefine the word “default” as and when needed.

Also the definition of borrower will be widened to include guarantor as default in case the principal borrower fails to repay loans. The amended law will give highest emphasis on capital maintenance.

According to the new law, if any bank fails to maintain a minimum paid-up capital and statutory reserve for a long period, it may face closure.

In case of banking, if any bank fails to comply with the international best practices, then heavy fines and restrictions on new deposits, credits or branches will be imposed.

A new clause has also been proposed prohibiting commercial banks to engage in brokerage house, portfolio manager, and merchant banking business, or businesses that require licences from the Securities and Exchange Commission.

The amended law will provide that two independent directors will replace depositor-directors. The number of directors in the board will be maximum 13. Now most of board of directors’ of commercial banks consists of 25 to 30 directors, of them some are bank owners and some are shareholders.

If any family holds more than 5 percent shares, it will have two directors and if the number of shares of a family is less than 5 percent it will get one director, as per the proposed amendments.

If a director of a bank fails to repay loans taken from any bank or financial institution, he or she will be barred from selling the shares until the defaulted loan is paid off. Legal challenges against any actions taken under this clause can only be lodged in a relatively higher court.

The International Monetary Fund (IMF) imposed 16 conditions including framing the banking company act and new regulations of classified loans for releasing $1 billion credit to Bangladesh.

Under the conditions, the Banking Companies Act (amendment) has to be placed in parliament by June, which will aim at giving BB the sole legal supervisory and regulatory authority over all commercial banks, and setting proper criteria for major shareholders, board members and executive officers of the banks.

The IMF asked the government to design a set of new regulations on loan classification and loan-loss provisioning, in line with international best practices, by June 2014.

In case of subsidiary companies under the proposed law, specific legal provision has been suggested so that commercial banks can form subsidiaries to engage in stock brokerage or merchant banking business with prior approval of the central bank.

The definition of share-holding has been rationalised to avoid ambiguities. Several caps have been introduced to limit the exposure of banks in the capital market, including overall portfolio exposure limit of 25 percent of the banks' capital. Currently, the exposure limit is 10 percent of the liabilities.

The Daily Sun/Bangladesh/ 7th March 2012