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Banking Company Bill strongly criticised

By Moazzem Hossain
The Banking Company Bill. 1991 has come under strong criticism from private banking and business circles.
The criticism of the Bill which seeks to provide a new legal framework for operations of the commercial banks is centred on. at least, half a dozen provisions proposed under it.
The banking circles resented the restrictions on payment of dividends to the shareholders. The Bill proposed that the paid-up capital, together with the reserve funds, must not be lower than six per cent of total deposits, both demand and time, of a commercial bank in any given year before payment of divided to the shareholders.
Such a provision will make it
difficult for the commercial banks, particularly those In the private sector, to announce any dividend for the shareholders. This will adversely affect the objective of broadbasing the share ownership because the ordinary investors will hardly get any return on their capital invested in the equity of the banks, a key functionary of a private commercial bank said on condition of anonymity.
'fhe banking circles pointed that the normal deposit growth of a private sector bank was within the range of Taka 100 crore and Taka 300 crore a year. Under the proposals tn the new bill, such banks will have to keep an additional amount, varying between Taka six crore to Taka 18 crore, against this normal deposit
growth before announcing any dividend for their shareholders, they noted. Such a provisioning Is difficult in the prevailing economic condition tn the country, they said.
Some bankers suggested that the provisions for additional reserves against -normal annual deposit growth should not exceed five per cent of the total deposits in the given circumstances.
The business circles, meanwhile, objected to the provisions under the Bill, fixing the tenure for the members of the Board of Directors for any bank, to six years. This provision is contrary to the terms and conditions laid down for public limited companies under the Company Act of 1913, they
observed. •
President of Dhaka Chamber of Commerce and Industry Mahbubur Rahman said that the provision about the tenure of the Directors was also in conflict with the fundamental rights, guaranteed by the Constitution. If any Director takes any undue advantages by abuse of authority. Bangladesh Bank under normal rules can at ease take disciplinary actions, he added while stating that the provision fixing the tenure of Directors for the banks as ’an uncalled-for move."
Another source in trade and industry circles felt that the provision about the tenure of the Directors would act as disincentive to new private Investments. The banks will
also be deprived of "experienced services, advice and counselling of Directors' in many cases, the source said.
The sponsors of some private sector banks also criticised the Bill for its provision relating to the submission of report by the Managing Director of any bank about the decision of its Board of Directors when he would consider any such decision not in the interests of the bank. This is a redundant move and will only create distrust and misunderstanding between the Board of Directors of any bank and its chief executive, the same source observed.
He pointed out, each commercial bank submits normally detailed reports about the decisions of their
Board of Director* from time to time to Bangladesh Bank The central bank can at ease take actions on the basts of such report* he added.
The key management personnel in banking circles resented the provisions under the new Bill, limiting the sanction of any credits or funds for any indtyidual firm or concern up to 15 per cent of the total capital of any bank.
The capital base of any small bank In the private sector I* within the range of Taka three crore to Taka 30 crore. The new provision under the Bill will make it difficult for the banks to cater to the needs of their "good and big clients', they felt. Such a restrictive provision, they said, will deprive the banks of good business opportunities.