Steps on to curb family dominance in banks

The Cabinet Division has approved the draft Bank Company (Amendment) Act 2023, keeping the provision of allowing only three members of a family to serve as directors at any bank, in a bid to curb family dominance on bank boards.

This approval came on Tuesday at a cabinet meeting, with Prime Minister Sheikh Hasina in the chair. The move is part of a series of measures recommended by the International Monetary Fund (IMF), aimed at introducing much needed reforms to the country’s banking industry.

Briefing reporters at the secretariat after the meeting, Cabinet Division Secretary (Coordination and Reforms) Md Mahmudul Hossain Khan said four members of a family can be directors of a bank under existing regulations, but the number will now be reduced to three.

Providing further details, he added, “Bangladesh’s banking sector currently follows the Bank Company Act 1991. We have introduced amendment proposals to update and modernise this law.

“The draft act has 34 provisions in total, provides definition to willful defaulters, and outlines legal action to be taken against such people.”

Mahmudul continued, “If an individual or company – despite having solvency – does not repay loans, interest, advances, investments or portions of financial benefits owed to a bank or non-bank financial institution (NBFI), he or she will be designated as willful defaulters.

“A person taking financial benefits from a bank or NBFI using his own identity, or the identities of their family members through fraudulent behavior or false information, will also be designated as a willful defaulter.”

He then said, “If a person takes out loans from a bank or NBFI, but does not use the money for its intended purpose, they will be termed a willful defaulter as well. Every bank will submit their respective list of willful defaulters to the Bangladesh Bank.

“The Bangladesh Bank will be able to restrict international travel of willful defaulters, and take steps to suspend their trade license. The regulator can also suspend a willful defaulter’s registration with the Bangladesh Securities and Exchange Commission (BSEC) Registrar of Joint Stock Companies and Firms (RJSC).”

Mahmudul further said, “Even if a person gets removed from the list of willful defaulters, they will not be able to serve as a director of a bank for five years. If a bank director gets designated as a willful defaulter, the central bank will be able to declare their post vacant.

“If a willful defaulter fails to repay money within two months of notice, a case can be filed against the person with the Artha Rin Adalat. If a bank or NBFI fails to send a list of willful defaulters to the Bangladesh Bank, the regulator can impose a fine of Tk 50 to Tk 1 crore.”

He added that if the violation continues, banks and NBFIs can be fined Tk 1 lakh per day.

The Cabinet Division secretary said, “The draft law has newly introduced provisions on transactions with bankers, granting loans to bank directors and their family members, and taking deposits from them.

“A borrower will have to provide deposits, bonds or security when taking out loans, even if they are members of the bank board of directors, or their relatives. A bank will not be able to grant loans or advances to one of their directors or their families without collateral.”

A bank will not be able to grant loans to anyone even if a director or their family member provides collateral. Under the draft law, in such cases, it is mandatory for every borrower to have co-collateral, Mahmudul added.