The Bangladesh Bank (BB) has almost completed the draft of the proposed amendment to the Bank Company Act in order to reduce numbers of private bank directors, streamline bank's capital market exposure and empower central bank to directly penalise individuals or organizations for breaching the law. The proposed draft law also aims to bring on changes in cash reserve requirements of banks and it would allow more than one person as nominee, the central bank sources said. “We have almost completed the draft amendment of the Bank Company Act. We are hopeful that we would be able to submit it to the finance ministry by next month,” Jahangir Alam, executive director, Bangladesh Bank, said.

Sources said the draft amendment proposes to keep the maximum number of directors at 20. Currently, many banks have 30 to 40 directors, which the central bank committee identified as a barrier to becoming a well governed company.

“We have found that bank boards, endowed with a sizeable number of directors, face various problems especially in providing loans,” an official said preferring anonymity. The committee is also considering barring more than two members of a family from sitting on a bank board at a time.

The draft amendment is likely to propose formation of a central financial regulatory authority, involving in it all the financial regulatory bodies including the central bank, the insurance authority, the micro-credit authority and the Securities and Exchange Commission, so that, in future, the body can monitor banks’ exposures to other areas as well.

The draft law also proposes to amend Section 109 of the Bank Company Act empowering the central bank to penalize individuals and organizations without having to go court, the official said.
Currently, many offenders go to court after conducting grave financial offences including siphoning of money from banks’ vault.

The committee will also introduce changes to Section-35 of the Act to accommodate more than one person as nominee of an account holder. Currently, a depositor can keep only one person as his nominee. The committee is also mulling setting up a central corporate memory to keep track record of any individual who committees offence in his professional carrier.
“If the criminal record could be preserved and managed centrally, it would benefit all the commercial banks in terms of checking background of people seeking loans. It would help reduce corporate crime significantly,” the official explained.

The Bank Company Act is being modified to meet global standards, by accommodating suggestions of donor groups, as it is one of the major priorities of the government.
Sources said the central bank is working on updating all laws related to the banking sector, particularly Bank Company Act, 1991, BB Order, 1972 and the Bankers' Book Evidence Act, 1891.
Clause 7A (a) of the Bangladesh Bank Order, 1972, clearly says that one of the major functions of the central bank is formulation and implementation of monetary policy from time to time.
The BB initiated the move about one year back as per an ordinance promulgated by the immediate past caretaker government (CG). The CG could not implement the ordinance owing to stiff opposition from the parliamentary standing committee and influential quarters of the government itself, sources alleged.

The ordinance, promulgated by the caretaker government, limits the number of directors on a bank board to a maximum of 13. But, the Bank Company Act, 1991 (Amended) does not limit the number of bank directors. The commercial banks appoint directors as per their respective Articles of Association, banking sources said.

The new draft of the Bank Company Act seeks to change the definition of defaulted  loan and double the existing amount of capital for commercial banks.

Source: The Independence/Bangladesh/May 26, 2011