Bank Company Act, 1991
Bank Company Act, 1991
Bank Company Act, 1991
(Amended up to 2013)
6
Preliminary (Part I)
8
Business of Banking Companies (Part II)
• Section 8: restricts the usage of the word ‘Bank’ and ‘Bank’
related words.
– No company or institution other than a banking company shall use
the words ‘bank’ or its part to their name. Exception-
• Subsidiaries of banking company,
• Association of banks interest
• Any company owned partly or fully by Government and notified
through the official Gazette
• Sections 9: prohibits banking companies from carrying out
trading activities (excepting Islami banks)
9
Business of Banking Companies (Part II)
• Sections 10: prohibit banking companies from holding immovable
properties (except for their own use)
– If such property acquired in any way it must be disposed off within seven
years.
– Bangladesh Bank may extend the time for a period up to five years.
• Section 11: Prohibition of employment of Managing Agents and
restriction on certain forms of employment
– A bank company -
• shall not employ or be managed by a Managing Agent
• shall not employ a person or continue employment of a person adjudicated insolvent,
convicted by a criminal court, receives remuneration or part of remuneration as
commission or as percentage of profit of the company or the remuneration, as
Bangladesh Bank’s opinion, is excessive
• shall not be managed by a person who is engaged in any other business, a director of
subsidiary of that bank-company 10
Excessive Remuneration
• While determining Excessive Remuneration BB may
consider:
a) the financial solvency of the banking company, the extension of
its activities, the size of its business and the general tendency of its
earning capacity;
b) the number of its branches and offices;
c) the competency, age and experience of the person receiving the
remuneration;
d) the amount of the remuneration given to any other person
employed in the banking company or to persons employed in similar
positions in other banking companies in about the same condition;
e) the interest of its depositors;
Section 11: Removal Convicted CEO and Director
• Where a person holding the office of a chairman, director, manager
or chief executive officer, by whatever name called, of a banking
company is found by any court or tribunal or other authority to have
contravened the provision of any law and the Bangladesh Bank is
satisfied that the contravention is of such a nature that the
association of such person with the banking company will be
detrimental to the interests of the banking company or its depositors
or otherwise undesirable, Bangladesh Bank may make an order, after
giving opportunity to express his/her opinion, that person shall cease
to hold the office with effect from such date as may be specified
therein. BB order may specify the time for which such person will not
be eligible for re-appointment as CEO or Director without BB’s
permission for a time period of maximum 5 years.
Business of Banking Companies (Part II)
• Section 12: Restrictions on removal of banking documents
– No Banking shall remove its records (including electronic forms) and work
process to outside of the country without permission of Bangladesh Bank.
• Section 13: relates to maintenance of regulatory capital:
– banks are required to maintain capital as laid down and defined in BB's
guidelines (Basel Accord)
– government in consultation with Bangladesh Bank may exempt the
specialized banks
– Bangladesh Bank to set minimum capital requirement for start-up and to
continue banking business
– failure to comply with capital requirements may result in heavy fine,
restrictions on new deposits, credits, or branches/business centers, etc.
– BB may apply to court for wind up the bank company under section 64(3)
13
Business of Banking Companies (Part II)
• Section 14: regulates voting rights of shareholders
– regulations of paid up capital, subscribed capital authorized
capital
– capital of a bank-company to consists of ordinary shares only
– voting rights of shareholders, excepting the government, not more
than 5% irrespective of shareholding
• Section 14A: says that shares of a bank shall not be
concentrated; any person, company or members of a family
can not buy more that ten percent share of a bank either
individually or jointly or both. Violation of the section may
result in forfeiture of those shares.
• Section 14B: says that no person, institution, or company,
alone or in concert with another person, shall become a
significant shareholder in a bank (more than 5%) without
prior authorization from the BB. 14
Business of Banking Companies (Part II)
• Section 15: regulates the appointment of directors and chief
executive officer:
– Sub-section (4): Every banking company other than specialized banks, shall
obtain approval of BB before appointing and/or removing a director,
managing director from his post.
– Sub-Section (6): No person shall qualify for appointment as director or
managing director of a banking company if he does not fulfill the ‘fit-and-
proper’ criteria.
– Sub-section (9): From 22 July 2014 onwards, no banking company shall have
more than 20 directors including 3 independent directors; however, if the
number of directors is less than 20, the banking company may have 2
independent directors.
– Sub-section (10): From 22 July 2014 onwards, no banking company shall have
more than four directors from a single family.
15
Business of Banking Companies (Part II)
• Section 15AA(1): The term of the office of the
Director of a banking company shall be three years. A
director shall not hold office for more than three
consecutive terms.
• Section 15AA(2): A director serving two consecutive
terms will be ineligible for re-appointment to the
banking company for the next three years.
16
Business of Banking Companies (Part II)
• Section 15B: Role of the Board-
– The board of directors shall be responsible for
establishing policies for the banking company, for risk
management, internal controls, internal audit and
compliance and for ensuring their implementation.
– Each bank shall establish an Audit Committee, the
members of which are selected from among the members
who are not in the executive committee of the board.
– Each bank shall establish a Risk Management Committee
made up of directors of the bank. 17
Business of Banking Companies (Part II)
• Section 15C: Internal Audit and Control-
– The board of directors of a bank-company shall cause the bank to establish an
effective internal audit and control system. The internal audit system shall be
operated independently of management and its reports are to be presented
to the Audit Committee.
– The internal auditor shall be given meaningful access to management and
members of management to discuss matters relevant to their functions and
shall have the right, upon request, to obtain from them any information or
documentation which he or she shall require.
– The persons engaged in internal audit functions shall not simultaneously hold
any position of authority to bind or represent any bank in contracts or other
transactions.
18
Business of Banking Companies (Part II)
• Section 17: If any director of a banking company fails to
repay any loan and such failure continues for two months
after being notified in writing, his post will fall vacant. He or
she shall not transfer the shares until the amount due is
completely paid off.
• Section 18: Transactions with director, managing director,
and bank officials:
– Sub-section (2) A director, managing director, and senior managers
two tiers below MD shall provide annually to the board particulars
of all commercial, financial, agricultural, industrial or other
business or family interests.
– Sub-section (3): Disclose material relationship with any party
having a significant contract or a proposed significant contract
19
21
Business of Banking Companies (Part II)
• Section 26A: put restrictions on capital market
exposure:
– exposure to a single company up-to 5% of bank's paid up
capital, share premium, statutory reserves and retained
earning [earlier 10%]
– exposure to a single company up-to 10% of respective
company's share capital [earlier 30%], and
– overall portfolio exposure up-to 25% of bank's paid up
capital, share premium, statutory reserves and retained
earning (to be complied within next 3 years). [Earlier this
was 10% of total liabilities.]
– failure to comply with restrictions may result in heavy
fine. 22
Business of Banking Companies (Part II)
40
Speedy disposal of winding up proceedings (Part
VII)
• [Section 78-100:] These sections provide High Court
Division exclusive jurisdiction to entertain and decide
on:
– the winding up of the banking company or before or after
the commencement of this Act
– any claim made by or against a banking company which is
being wound up
• Public examination of directors/auditor where any
loss has been caused to the bank by any act or
omission of any director or auditor 41
Miscellaneous provisions (Part VIII)
• [Section 101-123:] Miscellaneous
• Section 103: relates to nomination of one or more persons
for payment of depositors money and valuables, in case of
death.
• Section 104: No person other than the depositor has any
claim on deposit, except appropriate court’s order.
• Section 109: deals with penalties to be awarded for
contravention of statutory provisions or failure to comply
with the direction/instructions issued by BB.
• Section 110: says that chairman, director, auditor, liquidator
and employees of bank-companies are Public Servant.
42
Miscellaneous provisions (Part VIII)
44
Bank Resolution Policy and BCA
Bank Supervision and BCA
Areas of supervision
– Bank Management
– Capital
– Shareholding
– Dividend
– Directorship
– Loan Management
– Depositors Interest
Bank Supervision and BCA
• BB is authorized to issue and revoke license under
section 31 of BCA.
• Section 44 confers Bangladesh Bank to carry out
inspection on any bank at any time and examine the
books of account.
• Section 45 provides BB power to give directions
Bank Supervision and BCA
• Section 31, 44 and 45 has common objective:
a) Save public interest, or
b) improvement of the monetary policy or banking policy, or
c) prevent the affairs of any banking company being conducted in a manner
detrimental to the interests of the depositors or in a manner prejudicial
to the interests of the banking company; or
d) secure the proper management of any banking company,
(4) Without prejudice to the provisions contained in section 163 of the Companies
Act, a banking company shall be deemed to be unable to pay its debts if
a) it has refused to meet any lawful demand made at any of its offices or
branches within two working days; or
b) such demand is made elsewhere and the Bangladesh Bank certifies that the
banking company is unable to pay its debts; or
c) the Bangladesh Bank certifies in writing that the banking company is unable
to pay its
debts.
(5) Bangladeh Bank shall send a copy of any application made under subsection
(1) to the registrar of the Supreme Court.
Thanks