26 recommendations to bring discipline in banking sector

Each of the state-owned commercial banks (SCBs) will have to put in place a dedicated supervision cell to oversee cases of default loan worth Tk. one billion and above and take measures to recover the money.

This is one of the 26 recommendations that the finance ministry has recently come up with as the government wants to go tough against the default loan culture in the banking sector, particularly in SCBs.

As per the recommendations, Bangladesh Bank will also have a supervision cell to look into the default loan cases, reports UNB quoting officials in the finance ministry and banking sector.

According to the officials, different short, medium and long-term recommendations came up from a workshop titled 'Review of State-run Banks: Way to Face the Challenge' held last year. The finance division finalised the 26 recommendations.

For ensuring the accountability of the officials of banks and other financial institutions, there will be an index of various targets and in every three months each organisation will hold a review meeting to evaluate the index and take the next course of action.

Successes and failures will be stated in their annual confidential report (ACR). There will be reward and punishment for the success and failure of the realisation of defaulted loans.

There is a recommendation for setting up such index for the MDs and CEOs of the SCBs, evaluate their performance and introduce incentive system for them.

A recommendation has been given to set up a separate bench to settle down the writ petitions relating to default loans in the High Court.

Another recommendation has been given to formulate a policy to appoint directors in the banks through appropriate test, evaluating their education, professional qualification and other matters.

Emphasis has been given to formulate a policy on merger of banks in the light of existing laws of the country.

It is also recommended to prepare a full scale proposal through more scrutiny for making the SCBs to corporate entity by offloading their shares in the private sector.

For processing the loan proposal and approval, it is advised to maintain highest three steps side by side reviewing the existing system.

It has been recommended to formulate a policy and central data bank to resist possible forgery in taking land or assets as collateral.

It suggested drafting a policy by the central bank containing cautionary steps for giving LTR (Loan Against Trust Receipts) or bill purchase like non-funded loan facility.

It suggested that while evaluating the loan proposal the flow of working capital should be ensured. Bangladesh Bank could consider amending the existing policy if necessary, recommended the finance division.

To preserve the information about the loans, it suggested setting up a Know Your Customer (KYC) or Electronic Bank A/C under the supervision of the central bank.

It also said that to determine the land price for taking collateral there should be a policy to fix the surveyor or credit rating companies and enlist them after examination and evaluation.