Bankruptcy law to be toughened to curb NPL, ease doing business

The government has taken an initiative to toughen up the existing bankruptcy law to curb the rise in Non-Performing Loans (NPL) in the banking sector and to score better in the ‘Ease of Doing Business’ index of World Bank.

The amendment to the insolvency law will remove the stumbling blocks that is making doing business in Bangladesh hard, sources in Finance Ministry said.

An official of Financial Institutions Division (FID) said the bankruptcy law has not been amended in the last a decade and a half as the various vested quarters did not want amendment of the law.

Due to delay in amendment to that law, the default loan of the banking sector did not come down, the official also said.

Financial Institutions Division sources said the authorities want to make the law more stringent. At the same time, the provisions of the law are being made easier and more precise for bank and bankers and their clients. If a person goes bankrupt with a loan from a bank or financial institution, he/she will not be able to enjoy various benefits in his/her own name.

An online recent meeting was held by the Bangladesh Investment Development Authority (BIDA), with the executive chairman of BIDA M Sirajul Islam in the chair; Private Sector Industry and Investment Adviser to Prime Minister Salman F Rahman also attended meeting.

According to the decision, insolvency draft law to be compared with the Indian insolvency law within three weeks.

Company law to be checked while amending the proposed insolvency law to avoid duplication.

Draft insolvency act and small cottage industry act to be sent to FID, Ministry if Law and Parliamentary Affairs, and IFC for more review the draft law.

Another meeting will be held by BIDA for progress of an insolvency act within one and a half months.

In the meeting Salman F Rahman said, “We have been working on 11 indexes of ease of doing business. Out of 11 indexes Bangladesh has to improve insolvency act and enforce contract, he also said.

Bangladesh rose to 168th in the global ease of doing business rankings in 2020 year from 176th in the previous year.

The highlights of the three recent reforms include setting up a new business became less expensive with the reduction of fees for registration, name clearance and handing of digital certificates. In Dhaka, obtaining a power connection was made more efficient as the city invested in digitization and human capital. At the same time, the country reduced the amount of the security deposit required for a connection. Access to credit information was improved thanks to expanded coverage by the credit information bureau. This reform delivered in Bangladesh’s most significant improvement.

Under the draft law, the passport of a person declared bankrupt will be confiscated or canceled. Invitations will not be given to state functions.

The director of the company or the membership of the club will also be declared ineligible to buy a car. The government is also going to impose restrictions on the operation of multiple bank accounts.

The government is going to add new sections by amending the existing bankruptcy law.

The Financial Institutions Division of the Ministry of Finance has taken the views of the stakeholders last August while drafting amendment proposals of the Bankruptcy Act, 1997. According to the FID, the government has also taken steps to amend the Bank Companies Act and the Financial Institutions Act.

The draft law also bans intentional defaulters from traveling abroad, buying houses, cars and disqualifying them from being directors of the company but it did not work. In 2000, only one company was declared bankrupt under the act. After that no further trial was held under this law.

The Transparency International, Bangladesh (TIB) in a recent report said the Bangladesh Bank is losing leadership under political pressure and some business groups' interference has contributed to massive irregularities and corruption in the banking sector.

This business group has control over nine private banks, the report said.

The chairman of a private commercial bank took loans amounting to Tk 8,000 crore from different banks in the name of his various business entities. Of the loan amount, Tk5,000 crore was defaulted and restructured several times, but turned defaulter again, the report noted. Although defaulted loans declined to Tk 92,510 crore in March this year, riding on a relaxed rescheduling facility with 2% down payment, it increased further to Tk 96,117crore in June.

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