Proposed amendments to Banking Act insufficient for good governance: Experts

Business Desk :
The proposed Bank Company (Amendment) Act-2023 still falls short in some crucial ways necessary to establish accountability and good governance in the banking sector, according to experts.
The draft of the amended act includes a willful defaulter clause, which economists welcome.
Under the clause, such willful defaulters can be subjected to various penalties.
But how a willful defaulter will be dealt with still leaves some scope for ambiguity and fails to meet international standards, according to the experts.
The draft of the act also fails to adequately address the influence over decision-making enjoyed by sponsor-directors of a bank or their families, they said.
Thus the draft of the amended act that has been approved by the cabinet and now awaits passage in parliament does not inspire confidence that it could lead to a significant turnaround in the state of the banking sector. Single-family directors would still be able to control a bank through reciprocal understanding over time, precluding the bank’s board of directors from performing its three main functions of protecting the interests of depositors, minimizing loan defaults, and investing in ventures with good rate of returns through the loan approval and disbursement process.
They urged the government to define how willful loan defaulters would be dealt with in accordance with international standards, and to reduce the number of single-family members allowed on the board to two with a maximum tenure of six years each, from the existing four with a maximum tenure of nine years each, reports UNB.
The draft proposes to bring it down to just three, while keeping the maximum length of their tenures unchanged at nine years. Economist Dr Fahmida Khatun, executive director of the Centre for Policy Dialogue told UNB: “I think allowing two members of a family in the board of directors would be correct – I don’t understand why it has been kept at three (in the draft act).” When a bank is run by several members of the same family — there is virtually no obstacle in decision making by the director whose family dominates. Keeping this in mind, earlier the Bank Act of 1991 allowed just two directors from one family and banks were run better, she said.