Stringent Bank Company Act on the cards

Initiatives have been taken to amend the provisions of the Bank Companies Act. Accordingly, definition of the term ‘Loan Defaulter’ will be tougher. Accordingly, a person will be a defaulter for availing loan by himself or under the name of his institution or anonymously or against any non-existing organization. The definition shall be applicable for the non-payment of any financial benefit for part of the interest or profit as per instruction of the Bangladesh Bank.

The draft further said that the security provided against the loan cannot be transferred without the written permission of the bank. Even then, if the security is transferred without the knowledge of the bank and the loan is not repaid as per the instructions issued by the Bangladesh Bank, he will be considered a defaulter.

In addition, original debt and the interest there upon shall not be waived. There will be restrictions as far as the negotiations between the bank and the client is concerned. As per amendments alternative directors cannot be appointed for more than three months.

This information has been obtained from the revised draft of the Banking Companies Act.

However, relaxation is being brought in the definition of directors' family. No one will be able to use the word 'Bank' without authorization from the central bank.

The draft is currently before a committee comprising of representatives from the Ministry of Finance, Law, Bangladesh Bank and commercial banks. The draft will be presented before the cabinet once the committee finalizes it.

According to the source, according to the existing law, the clients have to bear the responsibility of the loan taken in his own name or the organization concerned but not for any loan taken under any anonymous or fake organization.

Under the existing law, if the investigation of Bangladesh Bank reveals anonymous or fake loan of a client, it may instruct the bank to show its liability in the name of the concerned clients.

According to the amended law, the responsibility will fall directly on the clients only if it is identified in the internal investigation of the bank without the guidance of Bangladesh Bank.

At the same time, the clients will have to face legal action for taking a loan in the name of a fake or anonymous organization. Officials of the banks and collateral assessment agencies involved in giving these loans will also be held accountable.

Under the existing law, the officials of the security apparatus are not held accountable.

In this context, former Governor of the central bank Salehuddin Ahmed said that although strict provisions were kept in the law, relaxation was broughtlater through the issuance of circulars which was a wrong decision. That is why the law is no longer properly enforced, he added.

It takes political will to enforce the law equally. Without it, good governance in the banking sector will not return. If good governance does not come, forgery will not decrease, he also said.

Under the prevailing money laundering law, there is no scope for opening anonymous or fake accounts. There is no opportunity to give loans in the name of these institutions.

The amended law is also incorporating the Money Laundering Prevention Act and the Terrorism Financing Act with the bank companies. As a result, such crimes can be directly prosecuted under those two laws.

At present, such crimes require separate investigation to try money laundering and terrorism financing. The new law will not require a separate investigation. However, this section will not apply to the Securities Custodian Service.

No institution or company can use the term bank without the license of Bangladesh Bank. Banks can't even use words which are not prescribed. For any unauthorized use, the Director, Managing Director (MD) of the company can be fined up to Tk 50 lakh or imprisoned for 7 years or both. If the violation continues, a fine of Tk 1 lakh can be imposed for each day.

No bank can hold significant shares of another bank. If it is done before the law comes into force, the remaining shares will have to be transferred except 5 percent of the shares within a year. Under the current law, it can hold up to 10 percent of the shares.

If a director is abroad or ill, the appointment of an alternate director can be done for a maximum period of 3 months but only twice a year. That means it can not be done for more than six months.

Currently, the alternate director can serve indefinitely. However, the central bank has issued a circular in this regard.

If a notice is issued to a director for default from the central bank and he resigns, it will not be acceptable.

Under the present law, if a notice is received in such cases, the concerned director resigns and takes the effectiveness of the notice in a different direction. If such notice is served, the central bank removes the director from office. As a result, he can no longer be a director. After receiving this notice to avoid punishment, the directors resign and renew the loan. As a result, he may be reinstated as director later. Amendment is being done to curb this trend.

Under the amended law, the central bank has the power to take action against the bank's associates. Under the current law, the central bank has no such direct authority.

In this regard, Abul Qasim Khan, former President of Dhaka Chamber and President of Business Initiative Leading Development (BILD), said that it is not necessary to confer power. The ability to exercise power by Bangladesh Bank must be enhanced and there must be honest desire to enforce the provisions, he said. 

ask/wi