Removing all confusions about the permission of new banks, Finance Minister AMA Muhith today categorically said the government is going to issue licenses for setting up three new banks.

“Not two, we're giving (permission for) three new banks,” he said while talking to reporters at Dhaka Club following a seminar on insurance sector in Bangladesh.

Turning down the notion of a messy situation in banking sector riddled with irregularities and lacking good governance, the octogenarian minister said banks failing to operate properly will go for merger.

"There is a provision in the banking law for merger. So, if any one fails, it will go to merger", he said.

Defending the government's move for allowing more banks in business, Muhith said still there is huge market for banks as a good portion of people still remained unbanked.

There are reports that the central bank recently rejected proposals for setting up three new commercial banks on the grounds that the deteriorating financial health of many banks, especially the nine that were last set up, does not allow any new banks in business.

Two of the three proposed banks are Bengal Bank and Peoples Islami Bank. The name of the third one and its owner remained unpublished.

BB conveyed its opinion to the Banking Division when the central bank was asked to scrutinise the proposals of three new banks.

A ruling party lawmaker and owner of Bengal Group of Industries has moved for the Bengal Bank while a Chittagong-based businessman MA Kashem pursued for Peoples Islami Bank.

The Finance Minister also could not remember the name of the proposed third bank.

At present, there are 57 banks in Bangladesh. Of them, 40 are local private banks, nine foreign and eight state-owned.

Officials at the central bank believe that the financial health of many banks is not good and it would have deteriorated further if there was no policy support from the regulatory authority.

As per a Bangladesh Bank letter to Finance Ministry, as of December last year, the total default loans in the banking sector stood at 9.2 percent and the capital adequacy ratio 10.8 percent of risk-weighted assets. Total stressed advances (defaulted and rescheduled loans) rose to 17.2 percent, up from 16.1 percent a year earlier.

Meanwhile, the Finance Minister while addressing at the seminar titled: "Protecting the Poor: Emerging Micro Insurance Market in South Asia," said that the government will give extra focus on flourishing of the country's insurance sector as it lagged behind compared with other sectors of the economy.

He said contribution of insurance sector and its coverage does not match with the country's growing economy as it contributes less than one percent to the GDP.

He admitted that insurance sector did not get proper focus of the government.

He, however, extend his support to the demand of insurance sector to make it mandatory for NGO to make a 'bank assurance' before micro finance lending in any project.

The seminar, organised by Bangladesh Insurance Association (BIA), was also addressed by senior secretary of Banking and Financial Institution Division of Finance Ministry Eunusur Rahman, Chairman of Insurance Development and Regulatory Authority Shafiqure Rahman Patwari and BIA president Sheikh Kabir Hossain.

Eunusur Rahman said the insurance sector has to build up confidence of the common people as there is a perception that people never get insurance claim from companies.