The finance ministry has prepared a revised draft of the Bank Company Act, adding a new provision that wilful defaulters cannot be directors of any bank or non-bank financial institution for a maximum of five years after they are exempted from loan default.
The previous draft mentioned a ban on such defaulters from travelling abroad in business class. This time, it has been made stricter.
According to the revised draft, wilful defaulters will not be allowed to travel abroad at all. Also, the ban on them from registering their homes, cars, and companies remains. They will not be invited to social and state programmes and will not be allowed to hold positions in any organisation.
Earlier, a preliminary draft amendment to the Finance Company Act called for a ban on wilful loan defaulters from travelling abroad. The country's financial institutions are governed by this law.
An official of the Financial Institutions Division told The Business Standard although the Bangladesh Bank had suggested further tightening of various sections, some sections in the preliminary draft had been relaxed considering the views of various organisations concerned and the overall situation.
The draft will be finalised and sent to the cabinet committee for approval.
Former governor of the Bangladesh Bank Dr Salehuddin Ahmed told The Business Standard in the amended Bank Company Act, there should be provisions to take strictest actions against wilful defaulters.
"One should not be allowed to be a director of a bank or a non-bank financial institution even after five years of having his name removed from the list of defaulters if he does not repay the default loan in full," he said.
"Someone can reschedule the loan and after repaying for a while, he can be appointed as a director and become a defaulter again. Therefore, someone should be declared unfit to be appointed as a director until the default loan is fully repaid," he added.
Salehuddin further said the amended law should include a system that will make it obligatory for a bank to disclose information about a bank director to the central bank as soon as he defaults.
In this regard, the Bangladesh Bank can take steps after consulting with officials concerned, he said.
"When I was the governor of the central bank, I relieved the chairmen and directors of two-three banks from the boards as they had defaulted. If the Bangladesh Bank wants, it can obtain information on defaulting directors from the bank."
Chairman of Brac Bank Dr Ahsan H Mansur said it would be very logical if the Bank Company Act imposes a ban on wilful defaulters from travelling abroad.
"However, the Bangladesh Bank must be free from political influence in identifying wilful defaulters. Because such defaulters will try to stay out of that list by exerting political influence," he said.
He said the law should be amended in such a way so that defaulters and wilful debt defaulters cannot go on with their usual lives.
"The process of recovering loans from them has to be made easier," said Mansur, also a member of the executive committee of private bank owners' association Bangladesh Association of Banks.
Mashrur Arefin, managing director of City Bank and president of the Association of Bankers Bangladesh, declined to comment on the matter.
According to the revised draft, banks and non-bank financial institutions will send the list of wilful defaulters to the Bangladesh Bank. After the central bank committee finalises it, the decision can be appealed within 30 days. The decision of the Bangladesh Bank will be final in this regard.
However, it will not be possible for the Bangladesh Bank to mark existing directors of banks as defaulters or wilful defaulters if the amended draft is made into law as there has been no change in Section 17 of the existing law, which is identified as an obstacle to marking bank directors as defaulters.
The section states that if the director of a bank takes out a loan from another bank and does not repay it, the lender bank will send a notice to him through the central bank. Failure to repay the loan within two months of issuing the notice will result in the director being declared a defaulter.
Even if directors of different banks take out loans in connivance with each other and do not repay that, the lending banks usually do not issue such notices through the central bank.
But the amended draft has added a new sub-section to this section, stating that a director receiving the notice cannot resign from his post while the notice activities are in progress.
Officials of the Bangladesh Bank and the Financial Institutions Division emphasised amending Section 17 on different occasions. At a meeting with top executives of state-owned banks in 2018, Senior Secretary to the Financial Institutions Division Md Asadul Islam said even if the director of a bank defaults on a loan taken out from another bank, no action can be taken against him.
"The procedure for taking action against him under Section 17 of the Bank Company Act is not realistic. It says the director of a bank can be removed from his post by issuing a notice through the Bangladesh Bank, but it is hardly enforced. In such cases, there should be a system to automatically identify his name in the Credit Information Bureau," he added.
At present, four members of a family can be on the board of directors of a bank. However, as the definition of the extent of a family is small in the Bank Company Act, multiple people can become directors from a family.
That is why the first draft says a family comprises husband, wife, father, mother, son, daughter, brother, sister, and their dependents. In the initial draft, son-in-law, daughter-in-law, father-in-law, mother-in-law, and their dependents were mentioned as a family, but it was not mentioned in the revised draft.
However, in the revised draft of the Finance Company Act, the list of family members includes husband, wife, father, mother, son, daughter, brother, sister, son-in-law, daughter-in-law, father-in-law, mother-in-law, and their dependents.
The existing weakness of the inability to mark bank managers as defaulters remains in the draft. The first draft called for giving the Bangladesh Bank the power to dismiss officials of the top two tiers or up to general managers of banks for irregularities and corruption, but it was removed in the revised draft.