Legal concession to Nagad digital bank

NagadFile photo

No single person or institution can own more than 10 per cent of a bank’s shares, stipulated in the Bank Companies Act. However, the Nagad Digital Bank Plc, which is waiting to start operations, is getting a special concession in this regard.

Nagad Digital Bank is owned by seven entrepreneurs with six of them are companies and one is an individual. Of the seven entrepreneurs, three companies have more than 10 per cent shares.

The government, however, says that the legal ban on not holding more than 10 per cent of the shares will not be applicable to them.

Following an application of the Bangladesh Bank, the financial institutions department of the finance ministry in a letter informed the central bank of the government’s consent in this regard on 27 March. The financial institutions department said, Nagad Digital Bank is exempted from compliance with the provisions of section 14 (a) (1) of the Bank Companies Act. That section deals with shareholding.

According to the Memorandum of Association (MOA), Nagad Digital Bank has a total of 125 million shares of Tk 10 face value. The paid up capital of the company is Tk 1.25 billion.

Of the seven entrepreneurs of Nagad Digital Bank, US-based Osiris Capital Partners LLC and Blue Haven Ventures LLC and Singapore-based Finclusion Ventures Private Limited hold more than 10 per cent shares. These three companies financed over Tk 1.07 billion of the paid up capital of Tk 1.25 billion.

Among the remaining four entrepreneurs, Zen Fintech LLC has shares of Tk 62.5 million, True-Pay Technologies LLC has Tk 40 million shares and the individual entrepreneur has shares worth Tk 62.5 million. And the only domestic company Fintectual Holding Private Limited has shares of Tk 12.5 million.

When asked, financial institutions department secretary Sheikh Mohammad Salim Ullah did not agree to speak on the issue.

However, Bangladesh Bank spokesperson Mezbaul Haque told Prothom Alo, “Nagad Digital Bank has the right to get the concession they received. Even the other digital banks other than Nagad also have the right to get this concession. Besides, the Bank Companies Act has empowered the government to offer such concessions.”

Nagad managing director Tanvir Ahmed told Prothom Alo, “We have heard that a government directive on keeping over 10 per cent of shares has been sent to the Bangladesh Bank. Now the Bangladesh Bank is supposed to issue a gazette notification in this regard. And, the ownership of Nagad Digital Bank is almost of foreign companies since we have been expecting foreign investment.”

Tanvir Ahmed further said the Nagad Digital Bank is likely to begin full operations by next July.

Pros and cons of digital bank

The Bangladesh Bank on 25 October last year sent a letter of intent (LOI) to Nagad Limited and Kori for opening digital banks in the country for the first time.

Earlier in June that year, the central bank issued a policy for the digital banks. According to the policy, despite having a headquarters to run operations, the digital banks cannot have any branch, sub-branch, ATM booths or any other establishments. The banking service will have to be provided to the customers through mobile phones or digital devices. It will require Tk 1.25 billion paid up capital to open a digital bank and Tk 5 million to be a director.

The digital banks cannot even provide any over the counter services and they will have to serve round-the-clock. Developed technology-based products including virtual card, QR code could be introduced to provide better services to the consumers but no plastic card can be supplied. However, the consumers could use the ATM booths and agents of other banks to avail the services.

Apart from this, no digital bank can open LCs. They cannot even provide loans to large and medium industries. However, there is no ban on providing loans to small businesses.

As per the policy, a digital bank will have to release an initial public offering (IPO) in the share market within five years of receiving the central bank’s licence, with IPO to be a minimum amount of a sponsor’s initial capital.

Half of the entrepreneurs will have to have sound knowledge and experience of IT-based banking, emerging technologies, cyber laws and regulations and the remaining half will have to have knowledge and experience of banking, e-commerce and various laws and regulations and banking acts.

A digital bank will also have to maintain at the central bank the minimum cash reserve ratio (CRR) statutory liquidity ratio (SLR) like the conventional banks.

* The report, originally published in the print and online editions of Prothom Alo, has been rewritten in ENglish by Shameem Reza