Bank Company Bill-23 leaves much to be desired

The Bank Company (Amendment) Bill- 2023 tabled by Finance Minister A. H. Mustafa Kamal on Thursday last runs short of remedies the country's troubled banking industry needs now. The proposed amendments, among others, define the term 'willful defaulters', empower the central bank to take action against such defaulters and reduce the number of directors from a single family.

The existing Bank Company Act has been amended seven times since its enactment in 1991, but some of its core objectives are yet to be fulfilled. One particular issue--- the buildup of default loans in banks---had particularly prompted the policymakers to put in place a separate law for banks. The multilateral donors which had been pressing the government hard to reform the banking sector since the mid-eighties also played a role in the law's enactment. Most changes made to the Bank Company Act so far are primarily designed to make it perfect and time-befitting. A few amendments, however, accommodated some undue demands coming from influential sponsor-directors of some private banks.

Unfortunately, the state of the country's banking sector, by any measure, is disappointing. The situation is now worse than before. Loan scams, on the one hand, have dented its image badly and a huge volume of non-performing loans (NPL) is eating into its vitals, on the other. The lack of discipline in loan management in the case of some state-owned banks and private banks is now at its peak. What is worrying is that some people responsible for loan scams or bringing some financial institutions to their knees have gone unscathed because of their political connections. The total size of the NPL, if the loans under the rescheduling facility are taken into account, comes close to Tk 1.5 trillion. This is huge money and the industry can hardly withstand it.

The reasons for the banking industry coming to such a pitiable state are more or less known to all concerned. Regulatory indifference, government interference and a lack of corporate culture are among the key reasons. Some recent developments in the banking industry in the absence of transparency and accountability would highlight the state of decline of the sector that is considered a key driver of the economy. The amendment which seeks to define 'willful defaulter' elaborately and to curtail benefits to such defaulters is a welcome one. In the absence of such a definition, even some big loan defaulters have claimed that the situation has forced them to withhold payments to the banks. The reality, in most cases, is found to be otherwise. Thus, the amendment in question would carry no meaning if the influential borrowers continue to dodge their inclusion in the list of 'willful defaulters'. The proposed bill though provides for appointing one alternate director for a maximum period of three months, it ignores the issue relating to the maximum number of directors from a family and the tenure of the directorship. The International Monetary Fund (IMF) had suggested changes here.

What remains important here is the intent of key stakeholders---the government, the central bank and the bank owners to make some positive changes. Are they interested in streamlining the banking sector? Until now they seem to have been uninterested in the face of demands for reforming the banking industry. Hopefully, they would demonstrate their due seriousness to clean the Augean Stables and help the banking sector emerge strong and disciplined.