Farmers Bank Chairman Muhiuddin Khan Alamgir yesterday resigned from its board after Bangladesh Bank asked him to quit.

The bank's Audit Committee Chairman Md Mahabubul Haque Chisty also stepped down from the board.

The central bank asked the two directors last week to resign over their alleged involvement in financial scams. If they had not stepped down, the BB would have removed them from the board of the troubled bank under the Bank Company Act 1991, a BB official told The Daily Star yesterday seeking anonymity.

In line with the BB directives, the Farmers Bank, established four years ago, restructured its audit, risk management and executive committees yesterday.

In a statement yesterday, the BB said the restructuring of the board would help the Farmers Bank restore confidence of the depositors who have been withdrawing funds due to its deteriorating financial health.

Despite repeated attempts, Alamgir, Awami League lawmaker and former home minister, could not be reached over his mobile phone yesterday. He is also chairman of the Parliamentary Standing Committee on Public Accounts.

Farmers Bank Director Mohammad Masud has replaced Alamgir as the new chairman. Another director, Maruf Alam, has been made its vice chairman and also chairman of the Audit Committee.

Earlier on Sunday, the BB issued a notice to Farmers Bank Managing Director AKM Shameem, asking him to explain within a week why he would not be removed him from his post for failing to manage the bank efficiently and address its liquidity crunch.

It also asked him to explain why the bank disbursed fresh loans despite having restrictions on lending, according to the BB notice.

Talking to this correspondent, Md Anwarul Islam, assistant spokesperson of the central bank, confirmed the issuance of the BB notice.

Shameem could not be reached over his mobile phone yesterday.

Earlier in January, the BB slapped some restrictions on the bank in disbursing loans and opening new branches, given its precarious financial health.

Non-performing loans at the bank increased significantly in recent months as the board continued to sanction and disburse loans in breach of the rules.

Between September and November in 2015, the BB conducted special inspections at three branches of the Farmers Bank in the city's Gulshan, Motijheel and Shyampur, and found gross violation of the banking rules in disbursing loans of around Tk 400 crore.

Some directors of the bank were allegedly involved in sanctioning loans, violating the credit rules.

Last year, the central bank appointed an observer to the bank to help it restore corporate governance, but the initiative went in vain.

As of September this year, Farmers Bank's non-performing loans (NPLs) amounted to Tk 377.68 crore, up by Tk 100 crore from the previous year's. The NPLs now account for 7.45 percent of the bank's total outstanding loans.

According to a BB report, 13 counts of irregularities were found in the bank, including disbursement of loans to nonexistent companies. The bank also gave loans to its own directors as well as those of other banks, violating the credit discipline.

Besides, the bank disbursed loans to defaulter clients against forged Credit Information Bureau reports, and took the burden of a number of bad loans from other banks, flouting the banking rules.

The Farmers Bank doesn't have the capacity to pay back the depositors' money and refund the credit taken from other banks, the BB report mentioned.

Despite offering 12 percent interest on its different deposit schemes, the bank failed to attract clients and suffered a severe liquidity crisis in recent months.

The bank has so far been fined Tk 18 crore for its failure to maintain the statutory liquidity ratio and the cash reserve requirement with the central bank.

Last week, the BB gave the cash-strapped bank a short-term loan of Tk 96 crore to help it meet the urgent liquidity demands.

Earlier this month, the bank failed twice to honour a cheque of Tk 35.44 crore presented by Bangladesh Telecommunications Company Ltd due to fund shortage. The state-owned telecom firm got the money later.