The Bangladesh Bank yesterday approved the guideline on digital banks, paving the way for establishing branchless banking operations, a development that is expected to accelerate cashless transactions and digital transformation.

"We are moving towards digital transformation of banking. We will issue the guideline soon for public and call for applications from investors who want to set up digital banks," said Md Abul Bashar, a spokesperson of the central bank.

As per the guideline, investors willing to set up a digital bank will have to have a minimum paid-up capital of Tk 125 crore and the capital will have to come from sponsors.

The minimum paid-up capital that a sponsor will have to contribute has been set at Tk 50 lakh.

The decision comes within two weeks after Finance Minister AHM Mustafa Kamal, in his budget speech, said a central bank committee was working to draw up strategies to broaden financial inclusion.

"The committee's work on formulating the outline for setting up digital banks has now completed. In 2023–24, we hope to be able to launch a digital bank," said Kamal on June 1. 

At the same time, the government is developing a machine learning and artificial intelligence-based credit rating system. 

"With these, it will be much easier to spot fake and anonymous borrowers. At the same time, it will be considerably simpler for genuine borrowers to obtain loans," said Kamal. 

Currently, the central bank is developing a portal to receive applications from interested investors online. Applicants will have to pay a non-refundable application fee of Tk 500,000 for digital banks, sources said.

As per the guideline, an AI-based dispute resolution system will always be active.

Digital banks will not be allowed to provide any service to clients directly through physical counters and can't issue any physical instruments.

Likewise, digital banks would not be permitted to give out loans to carry out foreign trade and term loans to medium and large industries.

The guideline says a digital bank must go public within five years after getting the licence from the central bank. The amount of capital to be raised through initial public offerings can't be less than the paid-up capital amount. 

The rule bars loan-defaulting companies, persons and their family members from becoming sponsor shareholders of digital banks.

No sponsor shareholder will be able to transfer shares without the prior approval of the BB within five years of operation.

The guideline has kept the number of members from the same family who will be given permission to sit on the board in line with the Bank Company Law. Currently, four members from a family can become directors of a bank.

The BB said the chief executive officer of a digital bank must have a five-year experience of working in technology-based banking, and must have a banking career spanning at least 15 years.

In Bangladesh, a number of companies have expressed their willingness to launch digital banks to serve a significant number of clients who are already accustomed to some form of digital financial services thanks to the fast-expanding mobile financial services. One of them is Nagad.

Tanvir A Mishuk, founder and managing director of Nagad, said, "Nagad is well-equipped with necessary products and services to establish a digital bank."

"If Nagad gets a licence for a digital bank today, it will begin to provide services to people from tomorrow."