Bank directors’ tenure catapulted to 12 years

Last-minute strokes raise bank directors' tenure to 12 years from nine and allow a sister concern of a defaulting business group or a person to borrow from banks as the much-hyped Bank Company (amendment) Act 2023 was passed in parliament Wednesday.

The original bill, believed piloted by the Finance Minister in line with recommendations of the International Monetary Fund (IMF) for availing its budget support, drew flak from experts for not reducing the tenure of the private-sector directors.

So the rise in the tenure through further amending the law at the fag-end stunned many, and triggered opposition walkout.

Through an amendment in 2018 the tenure of the bank directors was raised to 9 years from six years.

In his amendment proposal, Awami League lawmaker Ahsanul Karim Tito proposed a change in section 10 of the bill by raising the tenure of a bank director to 12 years from the existing nine.

After the completion of this 12-year tenure a director will not be eligible to sit on the bank board for the next three years, the amendment adds.

Another amendment proposal from him to the section 19 of the Bill said that if a person or a group becomes defaulter unintentionally, the subsidiaries of the group or the related enterprises of the person will not be treated as defaulter.

"In this case, if the central bank will find that there are logical grounds for that group or person for becoming a defaulter, then Bangladesh bank can give permission for granting loan to those subsidiaries or concerns," the amendment reads.

Opposition lawmakers came down heavily for the last-minute amendments, saying that this will widen the scope of "plundering the banking sector by the bank owners".

And at one stage, they staged a walkout from the House while the process of the passage of the bill in the overwhelmingly ruling-party-dominated parliament was ongoing.

Opposition lawmakers, mainly from the Jatiya Party, alleged the section 10 of the Act on which Awami League lawmaker Ahsanul Karim Tito moved the amendment proposal was not included in the bill when that was tabled.

But, in her ruling, Speaker Shirin Sharmin Chaudhury mentioned that the section was mentioned in the bill and the parliamentary standing committee proposed a minor correction of a year replacing 2017 with the year 2018.

According to the amendments, habitual loan defaulters will be barred from running businesses and from travelling abroad.

The amended law governing banks also has a provision which compels banks to publish their lists of willful defaulters on their websites and newspapers.

All the banks and non-banking financial institutions have to send the list of habitual defaulters to the central bank from time to time.

According to the amended law, an individual will be considered willful defaulter if he or she does not repay a loan taken in their name or their company's name despite having the means to pay it back.

In addition, any person will be treated as a habitual defaulter if s/he takes loans under the name of a non-existent company.

A borrower will also be defined as a willful defaulter if he or she transfers any asset kept as mortgaged in banks to get loans without prior approval from the bank concerned.

Banks will inform the Bangladesh Bank about willful defaulters and the central bank can issue a ban on their foreign travels, obtaining trade licence, and companies' registration with the joint stock and securities exchange commission.

"Willful defaulters cannot sit on the bank board for five years after being excluded from the list of defaulters," it says.

Also, if any director of a bank becomes a wilful loan defaulter, the central bank can declare his or her post vacant.

The Act allows the central bank to regularly inspect different institutes and foundations run under the law.

Every bank has to form two separate bodies -- identification and confirmation committees -- to detect habitual defaulters as per instructions of the central bank.

The persons who are treated as habitual defaulters by the confirmation committee of banks can appeal to the central bank within 30 days from the submission date of the list.

In this case, the central bank will have the final say to decide whether the concerned persons will be enlisted as habitual defaulters or not.

As per the move, the central bank will send the list to the government agencies concerned, which will then impose restrictions on delinquent borrowers.

Banks will issue notices to habitual defaulters to repay their loans within two months.

The amendment stipulates that maximum three members of a family can serve on the bank board. Earlier, four members of a family could sit on a board.

The amended law also says that the bank directors and their family members must provide collaterals, bonds or securities for bank borrowing.

If habitual defaulters fail to repay the loans by then, banks will arrange an auction to sell off the mortgaged assets as per the Money Loan Court Act 2003.

In the proposed law, there is a provision for mergers and restructuring of banks.

Opposing the passage of the bill opposition lawmakers of the Jatiya Party castigated the Finance Minister for piloting this bill as they fear the already- ailing banking sector will be ruined as unethical, and undue facilities are being provided to bank owners through the passage of the bill.

They said though officially the amount of default loan in the banking sector is Tk 1.33 trillion, actually it is more than Tk 3.0 trillion.

They also raised the question how the owners of the banks, having default loans of taka thousands o f crores, can be given the opportunity to "pose with the prime minister for photo sessions because they use these photos to exert undue influences".

JP lawmakers Mujibul Huq Chunnu, Kazi Feroz Rashid and Fakhrul Imam, among others, stood opposed to the bill.

They said apparently "a syndicate of business groups" is controlling the financial and banking sectors of Bangladesh.

In response to the criticism of the opposition lawmakers, Finance Minister AHM Mustafa Kamal said the banking sector has seen a lot of improvements in the last 14 years

With example he said that the ratio of non-performing lawns has been reduced to 8.6 per cent now from 13.2 per cent 14 years back.

He also said seven dedicated High Court benches were set up to dispose of the bank-related cases.

The number of the bank branches has increased to 11,170 at present, the Finance Minister added.

Mr Mustafa Kamal placed the bill on June 8 and it was sent to the parliamentary standing committee on finance ministry. The committee submitted its vetting report Sunday without any major changes after scrutiny.

Before passage of the Bill, the Finance Minister told the House that the amendments would bring a change in an earlier-formulated act titled "The Bank Company Act 1991" aiming to establish a modern banking system.

Earlier in March this year, the draft act was approved at the cabinet meeting chaired by Prime Minister Sheikh Hasina.

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