BB seeks authority to override law, waive banks' CRR penalties

Bangladesh Bank moves to bolster its regulatory authority to waive, remit, or reduce penalties for banks' Cash Reserve Ratio (CRR) shortfalls in special circumstances as the central bank oversees the largest bank-consolidation effort in nation's history.

To this end, sources say, the central bank governor, Dr Ahsan H. Mansur, has sent a proposal to the finance adviser and financial institutions (FID) secretary to take step for inserting a new sub-clause into Article 36 of the Bangladesh Bank Order 1972.

This sought-after prowess would allow the banking regulator to relax CRR-related penalties under special circumstances, overriding existing statutory provisions, they add.

Under the proposed amendment, notwithstanding the provisions of sub-sections (4), (5), (6), and (7), the BB Board may---upon an application by a scheduled bank or banks and in the interest of ensuring financial stability, protecting depositors' interests and maintaining public confidence in the banking system-fully or partially waive, remit, or reduce any penalty imposed or imposable under the section.

This discretionary relief may be granted if the bank concerned or banks are facing one or more of the following circumstances: liquidation, merger, amalgamation, acquisition, restructuring or the transfer of any assets, liabilities, or shares of a scheduled bank or banks by Bangladesh Bank under any applicable law, as well as the suspension or closure of the business of a scheduled bank or banks pursuant to applicable laws or by order of BB.

Under the existing legal framework, scheduled banks are subject to daily penalties for failure to maintain the mandatory CRR.

Policymakers, however, argue that for weak, loss-making, or restructuring banks, such penalties often aggravate financial stress rather than enforce discipline, making recovery more difficult.

In particular, banks undergoing mergers, acquisition, transfer of assets and liabilities, or regulatory restructuring find it almost impossible to maintain regular CRR compliance, as liquidity pressures intensify during transition periods.

They say the potential CRR-waiver power is directly related to the merger process and other restructuring efforts.

They believe continued enforcement of strict CRR penalties on banks under merger could undermine the financial base of the newly formed entity and weaken depositor confidence at a critical stage of consolidation.

Against this backdrop, bankers believe granting the central bank controlled, situation-specific discretion to ease penalties has become essential to ensure an orderly resolution of distressed banks.

According to a BB official, the proposal was placed at its 485th meeting and approved by the BB board directors of BB. It has been forwarded to the Finance Adviser and FID for legal vetting and further processing.

He says the exemption would be considered on a case-by-case basis, subject to applications submitted by the banks concerned.

One finance official has said, "We have received a proposal from the central bank and now are scrutinising."

Banking-sector experts think the move will strengthen BB's ability to manage orderly resolution of distressed banks amid consolidation efforts.

However, they caution that discretionary powers to waive penalties must be exercised with transparency and strict oversight, to avoid creating moral hazard in the banking sector.

Once enacted, the amendment is expected to provide the central bank with an important legal instrument for crisis management, particularly as bank mergers and restructuring gain momentum.

This regulatory flexibility comes at a time when the central bank has taken step to restructure the banking sector by merging five crisis-hit Islamic banks - First Security Islami Bank, Global Islami Bank, Social Islami Bank, Union Bank and EXIM Bank - into a single new one.

The newly formed Sammilito Islami Bank PLC received final approval from BB and began operations on December 02, 2025, emerging as the largest Shariah-based bank in the country.

The merger is part of a wider reform strategy to enhance governance, restore depositor confidence, and reduce systemic risk in a segment of the banking sector that has struggled with high levels of defaulted loans and liquidity pressures.

Under the resolution scheme, depositors in the merged banks will have their account balances recalculated based on status as of late December 2025, and no profit will be paid on deposits for the years 2024 and 2025.

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