Home ›› 08 Apr 2023 ›› Opinion
The government has taken the initiative to amend the Bank Company Act 1991 in line with World Bank and IMF conditions regarding loans.
In order to get the World Bank a US$ 250 million loan for budget support to Bangladesh, the multilateral lender has tagged the modification of Bank Company Act as one of the conditions. Moreover, IMF also stated bank company act upgradation as a condition and gave a deadline (by September 2023) to implement the bank company act in order to be eligible for the next tranche of loan. The draft Bank Company (Amendment) Act 2023 has been vetted by the cabinet and will be placed in the parliament for final approval. Establishing good governance in the banking sector and curbing the ever-increasing non-performing Loans, the Bank Company (Amendment) Act 2023 has been focused mainly. There are many salient features in the current amendment.
In the draft amendment, the number of directors’ assumption in bank’s board from a family has been reduced to three from the previous four. However, the tenure of the directors remains the same i.e. nine years. In the draft amendment of the Bank Company Act has defined the term “willful defaulter”. Firstly, it says that if someone has the ability to repay the loan, but doesn’t repay the loan would be treated as a willful defaulter. Secondly, if someone takes loans for his own needs or for his company for mentioning a purpose, but used it for a different purpose, then it is under the purview of a wilful defaulter. Thirdly, a willful defaulter would be treated someone if he/she takes a loan from a company which is actually non-existence. Fourthly, if a borrower takes a loan with assets keeping mortgages in one bank, and later transfers the collateral to another bank for the purpose of having loan without taking prior approval from the concerned bank will be treated as a habitual defaulter.
In the draft act, punitive actions have been proposed against the habitual loan defaulters and the central bank has been given the authority to enforce the punitive action against loan defaulters in accordance with the amendment act.
Under the proposed act, financial institutions have to provide the list of wilful defaulters to Bangladesh Bank from time to time and respective bank has to circulate the list on their website and also publish the list in the leading newspaper. If banks fail to provide such list to Bangladesh Bank, it would be subject to a monetary penalty such penalty are ranging from tk50 lac to 1 crore. Bangladesh Bank will recommend to various government departments to take some punitive action against habitual loan defaulters such as imposing a foreign travel ban, non- obtaining trade license and company registration etc. The willful defaulter cannot be the director of banks however, if any director becomes a habitual defaulter, then he/she will lose directorship and cannot be a director again until elapsed of 5 years from the willful defaulter. The proposed act also incorporates that the bank director has to provide collateral and securities to avail of bank loans.
The draft act also incorporates mergers and restructuring of the bank. Earlier there was no such provision in the act. This provision would help the financially weak bank go for a merger with sound banks.
To curb the unbridled Non-performing Loans in the banking sector and establish banking governance, the draft act would help greatly. IMF instructs to reduce non-performing loans below 10 per cent. It also suggests the amendment of the Bankruptcy Act and the Money loan act. The Non-Performing loan and bad loan has been debilitating to our banking industry. The non-Performing loan has been piling up and stood at Tk 134,396 crore in July and September quarters of financial year 22-23. Meanwhile, the bad loan rose to 8.16 per cent in December 2022 compared to 7.93 per cent in the same month of 2021.
The draft amendment act proposes stringent provisions against habitual loan defaulters and curbs the influence of family in banks’ board. However, the success of the Bank Company (amendment) Act 2023 ultimately depends on the government’s commitments and its proper implementation.
The writer is a banker.
