Draft Bank Company (Amendment) Act 2023

The draft Bank Company (Amendment) Act 2023 approved by the Cabinet this week appears to have lent a fresh look at the country's banking sector aimed at tightening of the lid concerning among others insiders' borrowing and the number of family members on the bank board. Clearly, identifying all these as the major lacunae in the existing Act, the amended draft to be enacted in parliament soon has attempted to address them in terms of what looks like strong punitive measures. There have been mixed reactions from different quarters, including economists, to the effectiveness of the new provisions of the draft.

From the newly incorporated provisions in the draft, what seems to be an important move is mandatory submission of collateral for borrowings by the bank directors, absence of which is often believed to have rendered the banking sector go haywire with mounting non-performing loans (NPLs) and accompanying non-compliance of various banking regulations. Another new feature of the draft is that a maximum of three members of a family can serve on the board, down from four in the existing law. But the tenure of the directors, which was increased to nine years from six years in 2018, remains the same.

There are strict punitive measures in the draft relating to non-compliance, dubbed 'wilful default', while availing loans. Definition of wilful default has been provided in the draft at some length, and what one gathers from the definition makes sense. According to the draft, despite having financial ability, if a person or institution fails to repay a loan, it will be considered wilful default. If anyone takes financial benefit from a bank or financial institution giving false information in the name of one or other family members, the individual will be considered a wilful defaulter. At the same time, if someone states a specific purpose for taking a loan from a bank or financial institution, but uses it for other purposes, the recipient will be considered wilful defaulter. If any director of a bank becomes a wilful loan defaulter, the Bangladesh Bank can declare the person's post vacant, says the draft. The draft also adds that a wilful loan defaulter cannot be eligible to be a director of a bank or financial institution until five years after being dropped from the list of wilful defaulters.

Barring more than three members of a family to be on the bank board seems to make little or no sense, according to former  central bank governor Dr. Salehuddin Ahmed, who reflecting on the issue said that the number was even less-two, in 2018, but there was no noticeable sign of improvement in governance. The tenure of the directors-nine years as in the current Act, seems too long and needed to be shortened, he opined. Dr. Ahsan H. Mansur, Executive Director, Policy Research Institute (PRI) feels that bank governance will not improve if the government and bank boards do not really want to solve the existing problems hurting the banks and financial institutions. Given that the draft is not flawless, and needs to be better tailored, one still can hope that enactment of the law would bring a semblance of discipline, at least in curbing NPLs.