Law to tighten reins on Islamic banking

Traditional commercial banks will have to close their Islamic banking wings, and only the full-fledged Islamic banks will be allowed to offer the shariah-based services.

If commercial banks offer Islamic banking along with traditional services, the main spirit of the Islamic banking is hampered, a finance ministry official said.
The change has been incorporated in the amendment to the Banking Companies Act, which is likely to be placed in a cabinet meeting today for approval.

The law will also have stringent measures to curb frauds in fund collection from people in the name of deposits, and scams in the banking sector.
If any non-bank organization collects deposits from the public, it will have to take approval from the central bank, according to the proposed amendment.
Bangladesh Bank will also monitor the activities of these organizations and take punitive measures against them if any irregularity is detected.

The ministry official said the changes will be included in the amendment as different organizations, including Destiny, collected deposits from their members and later embezzled the funds.
No bank will be allowed to appoint more than 15 directors, but the new banks will get two years to bring down the number of their directors.
Over the last decade, successive governments took a number of initiatives to limit the number of directors on the board to ensure sound corporate governance and discipline. But the moves fell flat due to pressures from influential bank owners.

The existing law does not specify the number of directors.
During the time of the last BNP government, the central bank set the maximum number of directors at 13 but could not implement the directive as the provision was not included in the Banking Companies Act.
The proposed amendment also empowers the BB to remove any chief executive officer of the state banks.

Under the existing Act, the power of removing the chairmen, directors and other high officials, including the managing directors of state-run and specialised banks, remains in the hand of the government.

The existing Act says the BB can remove the chairman, any director or official of all commercial banks on charges of irregularities, except for the government-nominated chairman, director or chief executive.

In case of irregularities by any government-nominated official, the BB can only submit a report to the government for its consideration.

Besides, the banks' exposure to the capital market is being lowered to 25 percent of their regulatory capital. The existing law allows banks to invest 10 percent of their deposit in the stock market.

News source:
The Daily Star Bangladesh
Dated:- 4-Mar-2013

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