The parliamentary standing committee on finance ministry has recommended passage of the controversial Banking Companies Act 2017 without bringing any change to the proposed law. The committee in a meeting held at Parliament Secretariat on November 21, made the recommendation after scrutiny of the draft law.
The cabinet on May 8 approved amendments to the draft law allowing four members of the same family to be on the board of a commercial bank instead of two. The proposed law also allows the directors of a commercial bank to serve three consecutive terms of three years each which was earlier two terms.
The amendment entails that a director of any bank will not be able to remain in office after nine years. The individual may again hold the post after a three-year break as per the law.
Economists and noted bankers opposed the proposed law saying that, it will hamper the interest of the depositors and will have a negative impact on the whole banking sector of the country making the banks into family concerns. They said the government initiated the amendments for the benefit of the businessmen. The proposed law stipulates that four members of a family instead of existing two can be inducted into the board of directors of a commercial bank at a time. A director may be re-appointed for three consecutive terms after a three-year break as there is no obstacle in the law to holding the post after a break. The existing law allows directors of a commercial bank to hold the office for six years—two consecutive three-year terms. The same individual becomes eligible to hold the post for another three terms with a three-year break.
The Banking Companies Act was amended in 2013 fixing the tenure of share-holding directors and the number of family members as directors of a bank. The 2013 amendments were made in accordance to the advice of the International Monetary Fund (IMF) and followed international best practices. The amendments came against the backdrop of directors getting involved in irregularities regarding loan operation. The Banking Companies (Amendment) Act-2017 was placed before parliament on September 12, amid a strong opposition from the Jatiya Party.
Most of the banks in the country are now bleeding with default loans climbing three times over a nine-year period. The banking sector’s non-performing loan (NPL) ratio was 9.23 per cent at the end of last year. This ratio currently stands at 10.67 per cent as of September 2017. The volume of default loan is because of giving out loans to companies of dubious reputation and without following the norms of credit. With such ill practices year after year and scam after scam, the banks have given out thousands of crore of taka with little prospect of recovery.
The five influential persons charged with involvement in Hall-Mark, Destiny, Basic Bank and Commerce Bank scams, have not returned Tk 65.08 billion which they had committed to pay. The High Court granted anticipatory bail to businessman involved in the Basic Bank scam on condition that he would pay the bank Tk 20 million every two months. He later surrendered to a lower court and appealed for bail, stating that he had paid the last instalment of Tk 35 million. The Anti-Corruption Commission (ACC) said that this instalment is not an adequate compensation for bail.
A Jatiya Party law maker and also a member of the parliamentary standing committee on the ministry of finance, is on bail without returning any of the money. Hall-Mark Group chairperson was arrested in 2012 in connection with a scam of Tk 35.47 billion. In 2013, Metropolitan Senior Special Judge granted her bail in 11 cases on a condition of paying instalments of Tk one billion per month to Sonali Bank. But the group did not refund the money. This group misappropriated about Tk 2.5 billion from Sonali Bank. The state provided Sonali Bank with capital from its own reserves.
The Chairman and the Managing Director of Destiny Group were directed to return Tk 28 billion. Though they are in prison now, they have not returned any money. The Destiny scam is one of the biggest scams in the history of Bangladesh’s financial sector. The Destiny Group misappropriated about Tk 40 billion from people by luring them into business. The clients did not get any money back. A three-member Appellate Division bench headed by former Chief Justic Surendra Kumar Sinha passed a conditional bail order concerning Destiny Group Managing Director and Destiny Multipurpose Cooperative Society Ltd Chairman. Their lawyer appealed for bail, proposing the return of Tk 28 billion.
ACC and Bangladesh Bank accused a lawmaker of embezzling about Tk one billion from Commerce Bank, using a fake Letter of Credit (LC). A High Court verdict also accused him of abusing the judicial process. The lawmaker received bail on the condition that he would return Tk 250 million in 50 days. But he did not return the money. As many as 82 businessmen have been found involved in the BASIC Bank scam, including the Chairman of the Board of Directors.
Some of the accused persons sought bail in a High Court bench on 26 September 2016, saying that they are willing to return the money, but if they were put in jail, they would not be able to return the money. They are on bail now, but not returning the money. ACC chairman Iqbal Mahmud said, “Though we sought justice against the criminal offence, not for the recovery of the money, we did not oppose the condition of returning money. It is the people’s money and it should be returned. But money has never been recovered in this manner.”
Companies are looting money from clients in the name of mobile banking services in absence of a regulatory framework, former Bangladesh Bank Governor Dr. Mohammed Farashuddin said on November 21. He came up with the remarks while addressing, as the chief guest, a function marking the 13th founding anniversary of the Anti-Corruption Commission (ACC) at Bangladesh Shilpakala Academy auditorium in the capital. Talking about his experience with mobile banking services, the former BB governor said he recently transferred some cash to a teacher in Bogra but two percent of the amount was deducted by the service provider as fees.
Surprisingly, Bangladesh Bank is completing the primary process for issuing licences to two more private banks, while the whole banking sector is in disarray for lack of proper control. Experts opined that issuing licences to new banks in the present situation would be detrimental to the banking industry and the economy as a whole. The finance ministry on November 15 sent a letter to the BB asking it to take measures required to issue the licences to two new banks. BB had turned down the licence requests of the two banks in September on the ground that financial health of many banks, especially the nine newest, were deteriorating and that there was no need for new banks. The BB had changed its decision after the government high-ups instructed the regulator to approve the two new banks.
In fact, the default loan culture has taken an alarming position which has damaged the economy and deprived honest borrowers of new funds. The default loan amount has stood at Tk 63,365 crore as on June 30, which is more than10 per cent of the total outstanding loans, according to the latest data supplied by the BB. If the written-off and rescheduled loans are taken into account, the amount will cross the Tk one lakh crore, which is quite alarming for the whole financial sector. Because of the growing default loan culture, banks are losing their income on interest, which has compelled them to reduce the rates of interest on saving deposit schemes.
BB is entrusted with the responsibilities to regulate and mitigate the anomalies in the banking sector. It is high time for the BB to start playing the role of regulator strongly and bring the sector in the right track. The National Parliament should not pass the controversial Banking Companies Act 2017 without bringing proper change to the proposed law, which will hamper the interest of the depositors and will have a negative impact on the whole banking sector of the country making the banks family concerns. Unless these steps are taken properly, there is little hope of restoring order in the banking sector which is an ominous sign for the national economy.
The writer is a columnist