The finance ministry has taken several moves to bring down the mounting default loans and strengthen the banking sector's corporate governance.
A high-powered committee will be formed within the next week -- led by Bangladesh Bank Deputy Governor Ahmed Jamal -- to provide recommendations for reforms in the banking sector.
“The government will not form any banking commission or taskforce to restore discipline in the banks,” said a finance ministry official.
Rather, the Ahmed Jamal-led committee will explore the ways to reinstate corporate governance.
The government will implement the proposals given by the committee after vetting them, he said, adding that the default loans will come down once the proposals are implemented.
The panel will comprise of the executive director and general manager of the banking regulation and policy department of the central bank, two officials of the finance ministry and four to five managing directors of banks.
Last month, the ministry formed a three-member committee, led by Md Rizwanul Huda, joint secretary of the financial institution division.
Loopholes in Artha Rin Adalat Ain 2003 (Money Loan Act) are the main barrier to bringing down the default loans, according to the report submitted by the committee last week to the Financial Institution Division Secretary Md Ashadul Islam.
As of September last year, default and written-off loans together stood at Tk 137,236 crore, of which nearly 85 percent is pending with the money loan courts because of the drawn-out process to settle the cases.
There is an urgent requirement to revise some provisions of Artha Rin Adalat Ain as defaulters are frequently exploiting the loopholes of the act to not repay their loans, the report said.
Some notices that were issued by the central bank regarding loan classification and provisioning should also be revised.
There is no need to reform the Bank Companies Act 1991 as it covers sufficient provisions to ensure a disciplined banking sector, the report said.
The committee will arrange a meeting with the managing directors of state-run banks within the shortest possible time to seek their opinion on how to reduce the default loans, a finance ministry official said.
After taking suggestions from the MDs of the state banks, the committee will finalise the report and hand it to Finance Minister AHM Mustafa Kamal.
The government has also taken a decision to follow a more cautionary approach when appointing directors to state banks.
Many central bank probe reports indicated that directors of state banks were largely responsible for the financial scams in the institutions.
The finance minister will interview the shortlisted candidates. Those with no record of controversies will be appointed as directors of state banks. The Awami League-led government has given importance to bringing down default loans in the banking sector soon after it assumed office last month for the third consecutive term.
In the meantime, the central bank has also moved to amend the Money Loan Act and the Bankruptcy Act, 1997 with a view to handing out exemplary punishment to habitual defaulters. As part of the move, the central bank arranged a meeting on February 6 with managing directors of all banks in presence of Law Commission Chairman ABM Khairul Haque and Bangladesh International Arbitration Centre CEO Muhammad A (Rumee) Ali.