The Bank Company (Amendment) Act 2023 was passed on 21 June 2023, with certain significant changes. For instance, the amendment has a provision extending tenure of bank directors to 12 years (per section 15AA). The Bank Company Act 1991 had provided that a director could hold the directorship for six years in a row. In 2013, the Act was amended, allowing a director to hold the bank directorship for six years, and the tenure was subsequently extended to nine years in 2018. Finally, this time around, the tenure has been extended to 12 years. The tenure of 12 years of a director in a bank is quite substantial and it may potentially jeopardise corporate governance in this sector.

Through the Bank Company (Amendment) Act 2018, the number of members of the same family in a private bank's board was increased from two to four. Now it has been reduced to 3 by the 2023 amendment.

As per the amendment, the banks must send list of willful loan defaulters to Bangladesh Bank (BB) and the BB will publish it. The loan defaulters can file an appeal with the BB within 30 days. If a bank fails to send the list of loan defaulters to the central bank in time, the bank can be fined Tk 50 lac to Tk. 1 crore. According to the amendment, if a person or institution willfully fails to repay a loan, they will be considered willful defaulter. A willful defaulter cannot be eligible to be a director of a bank or financial institution until five years pass after their exclusion from the list of willful loan defaulters. The willful defaulters will encounter restrictions in travelling abroad, purchasing shares, exercising his/her directorship and so forth. Nonetheless, this amendment is in a way friendlier to loan defaulters on one count. According to the amendment of section 27AA, the sister concern of a company can get loan from the bank even though its sister concern is a defaulter. Before this amendment, all enterprises of a group were considered defaulters if a sister concern were a defaulter.

According to Bangladesh Corporate Governance Code, listed companies including banks, non-bank financial institutions, insurance companies and statutory bodies shall not have less than five and more than 20 directors at a time and among them at least one-fifth must be independent or non-executive directors. However, as per the 2023 amendment, there is scope for only 2 independent directors within a bank company.  

It is certainly not an overstatement to say that the Bank Company Act 1991 regulates a large sphere of our economy. We need a massive reform of this Act to decrease the amount of defaulted loan as well as to bring stability in this sector. The sector showed better performance in the past due to some reforms. In the 1980s, the government started the liberalisation process by denationalising the nationalised commercial banks. The reform process continued during the 1990s and the 2000s. Ironically, these reforms happened virtually under the directions of the World Bank and the IMF, and not spontaneously initiated by the government as such.

The Writer is an Advocate, Dhaka Judges Court.