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Lobbying on to get nod for new banks

50 applications received, a few referred by PMO

REJAuL KARIM BYRON
Though the central bank has no plans to give go-ahead for setting up new banks, lobbying by the ruling party-blessed quarters for the permission has been going on, said a government source.
Pressure from the highest level of the government may eventually force Bangladesh Bank (BB) to allow at least three new banks at the end of present government's rule, added the source.
The BB and the finance ministry so far have received about 50 applications for permission to open new banks. Some of those were referred by the Prime Minister's Office (PMO), said a finance ministry source.
One very influential man in the PMO and a senior cabinet minister's son may win approval for the banks
they have proposed to open.
The finance ministry last year rejected a number of applications. But recently, pressure from the government high-ups has put the ministry and BB in dilemma again regarding the permission, the source said. The lobbying is so intense that the central bank might finally give in to the pressure.
Though the authority to grant permission to establish new banks lies with the central bank, many investors are lobbying the PMO and the finance minister's office for the permission.
As the provision for whitening black money has been extended in the current fiscal year, many of the black money holders are pressing the government for permission to establish banks. Some of them have even promised the ruling party leaders hefty contribution for the
upcoming national elections.
WHO HAS THE AuTHORITY TO GIVE NOD
Establishing new banks would require PMO's approval in the past, but amendment to the Bangladesh Bank Order had put the authority entirely on the central bank.
According to section 31 of Bank Company Law, 1991, BB has the power to grant permission for opening a new bank. But in a circular on December 2000, the government formed a permanent committee to examine the applications for permission to establish commercial banks or branch of foreign banks or financial institutions before awarding licence.
So far, BB has been providing licence on this committee's recommendations. But when Bangladesh
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Bank (amended) Act, 2003 came into effect, section 9(1) of Bangladesh Bank Order, 1972 became null and void and BB the sole authority to give permission to open new banks. Section 9 (1) used to empower the government to make recommendations in the public interest.
A BB board member however pointed out that though the central bank is supposed to have the oversight in this regard, it cannot always exercise its authority. As BB is not an autonomous body, it has to carry out decision imposed from the highest level of the government, he said.
NEW GUIDELINES
Last month the BB board approved fresh guidelines on establishing new banks. The guidelines were adopted under the Central Bank Strengthening Project (CBSP). They include all the former rules while some new rules have been incorporated.
According to the guidelines, a bank draft of Tk 8 lakh as a non-refundable application-processing fee will have to be attached with an application. Besides, the application must be submitted along with feasibility report for the proposed bank company, detailed minutes of the company shareholders' meeting, deed of the entrepreneur shareholders regarding establishing bank company, board resolution regarding organisational entrepreneurs' shareholding and other related documents.
Another rule requires that sponsors' contributions to the equity capital of the proposed bank will have to be out of net worth declared to the tax authorities, and contribution out of borrowing shall not be acceptable.
The rules say that establishing a new bank will require a capital of Tk 100 crore.
Again, the minimum shareholding stake of each sponsor shall be Tk 25 lakh and the maximum 10 percent of the proposed bank's total share capital. This ceiling of 10 percent applies to an individual, company or family member, either personally, jointly or both. 'Family' is defined herewith to include spouse, father, mother, son, daughter, sister of the individual or anyone dependent on thatindividual.
Sponsors and directors will have to submit a biographical report containing detailed information about their parents, spouse, children, brother, sister and dependants.
NEW BANKS OR MERGERS
At present, there are about 49 commercial banks in the country, and 30 of them are private. Some of those private banks are widely tagged as
'problem banks'; many of which were established in the 80s. Besides, some of the banks set up in the 90s too show the propensity for becoming bad banks.
The idea behind giving permission to establish new banks was to create a healthy competition among the banks and therefore, provide the people with good and cheap banking services. But in reality, an unhealthy competition has started among the banks, increasing the interest rates and indulging in different kinds ofirregularities.
The government in the face of pressure from the donors has taken up reform initiatives for the banking sector. The measures have already yielded some good results at least in the private sector. However, the reform programmes are only halfway through and need to be carried out fully.
Many economists and bankers believe permission should not be given for setting up any more new banks. A BB board meeting last month discussed the issue and concluded that given the country's present economic state, there is no necessity for new banks. They were instead of the opinion that two or three sickly banks should be mergedinto one.
The central bank also discussed the necessity for creating the legal basis of such merger or acquisition. BLACK MONEY IN NEW BANKS
According to the guidelines for setting up new banks, opportunity to invest black money has been sealed. However, this year's budget has the provision for paying just 7.5 percent tax on black money. Banking sources say many may take this opportunity and invest black money in new banks and may be that is why the finance minister has not attached any strings to the provision for whitening black money.
WHY SO MUCH INTEREST
Huge profit and less risk are the main motivations for many to be lobbying the government for permission to set up new banks.
Khondkar Ibrahim Khaled, managing director of Pubali Bank, said, "Investment in banking is a good one as the profit is ensured. Besides, banks are hardly at risk for decline in law and order or problems of that sort, as are many other businesses."
All the banks are making profit. In the last six months, private banks have made a profit of around Tk 1,000 crore. Moreover, directors of the banks enjoy a wide range of business privileges. Bankers believe these are the reasons for many to be interested to invest in the banking sector.