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Class 05

The document outlines the regulations for establishing a banking company in Bangladesh, emphasizing the need for a license from Bangladesh Bank and specific conditions such as a minimum paid-up capital of Taka 400 crore. It details the requirements for sponsors, including their financial contributions and fit and proper tests, as well as guidelines for loan classification and provisioning. Additionally, it provides a framework for different types of loans and their classification based on objective criteria and qualitative judgment.

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Al-Amin
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12 views22 pages

Class 05

The document outlines the regulations for establishing a banking company in Bangladesh, emphasizing the need for a license from Bangladesh Bank and specific conditions such as a minimum paid-up capital of Taka 400 crore. It details the requirements for sponsors, including their financial contributions and fit and proper tests, as well as guidelines for loan classification and provisioning. Additionally, it provides a framework for different types of loans and their classification based on objective criteria and qualitative judgment.

Uploaded by

Al-Amin
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Bangladesh Bank

Regulations for
Scheduled Banks
GUIDELINES TO ESTABLISH A BANKING
COMPANY IN BANGLADESH

 According to Section 31 of the Banking


Companies Act, 1991, no company shall carry
out banking business in Bangladesh without
obtaining a license from Bangladesh Bank.
 Bangladesh Bank will decide to grant licenses
after considering the need and overall strategy
congenial to effective monetary and financial
sector policy for the country.

2
Conditions to be Met

1. Status of the new commercial bank.

1.1 Must be a public limited company incorporated in Bangladesh.

2. Paid up capital requirement for a bank to be established:

2.1 The paid up capital of new commercial bank shall not be less than Taka
400.00 Crore as required under Bank Company Act 1991. The share capital will
be formed with ordinary shares only.

3. Mode of payment:
3.1 For a banking company incorporated in Bangladesh, the capital
contribution made by the sponsors and subscribers of the proposed bank shall be
in a liquid, unencumbered form (such as cash or approved securities), held in a
bank account that has been verified by Bangladesh Bank, and under a
3 Bangladesh Bank lien.
Conditions to be Met
4. Sponsors and share capital contribution:
Initial minimum capital Taka 400.00 crore shall be provided by sponsors of the
proposed bank.

4.1 The bank shall issue public shares within three (3) years from the date of
commencement of the banking business. Public issues shall be at least equal
to sponsors' share amount.

4.2 The minimum shareholding stake of each sponsor shall be Taka 1.00 crore
and the maximum shall be 10% of the proposed bank’s total share capital. This
ceiling of 10% applies to an individual, company or family member, either
personally, jointly or both. “Family” is defined herewith to include spouse, father,
mother, son, daughter, brother, sister of the individual or anyone dependent on
that individual.

4.3 The ceiling of 10% may be relaxed in the case of a bank set up as a joint
4 venture with a foreign financial institution or banking company.
Conditions to be Met
4. Sponsors and share capital contribution:

5
Conditions to be Met
5. Fit and Proper Test for Sponsors/Directors
Competence, integrity and qualifications of the
Sponsors of the proposed bank becoming the first
Directors shall be evaluated. The evaluation process
shall include background checks on whether previous
activities, including regulatory or judicial judgments,
profession, raise doubts concerning their competence,
sound judgment, or integrity.

6
Conditions to be Met

7
Conditions to be Met

8
POLICY ON LOAN CLASSIFICATION AND
PROVISIONING

 Loan loss provisioning – the recognition that some


or all of the required payments on a loan may
never be made – is the single most important
aspect of asset valuation to bankers and bank
supervisors.
 Bangladesh Bank also wishes to stress that it is
the responsibility of bank management to adopt
and implement proper accounting and reporting,
and that correct classification and provisioning is
a part of that responsibility.

9
Effects of Loan classification

 Interests applied on loan are not taken into


income account because such interests are to
be taken into account only on its realization.
 Banks have to make provisions on classified
loans as per guidelines provided by the
Bangladesh Bank from income earned by them
on performing loan.
 (BRPD circular no-14 ,19)

10
Categories of Loans and Advances for the
purpose of classification

1. Continuous
Loan

2. Demand
Loan

3. Fixed Term
Loan

4. Short-term
Agricultural
& Micro-Credits
11
Different Types of loans
Continuous Loan - The loan Accounts in which transactions
may be made within certain limit and have an expiry date for
full adjustment will be treated as Continuous Loans. Examples
are: CC,OD etc.

Demand Loan:The loans that become repayable on demand


by the bank will be treated as Demand Loans. If any contingent
or any other liabilities are turned to forced loans (i.e. without
any prior approval as regular loan) those too will be treated as
Demand Loans. Such as: Forced LIM, PAD, FBP, and IBP etc.

Fixed Term Loan:The loans, which are repayable within a


specific time period under a specific repayment schedule will
12 be treated as Fixed Term Loans.
Different Types of loans
Short-term Agricultural Credit will include the short-term
credits as listed under the Annual Credit Program issued by
the Agricultural Credit and Financial Inclusion Department of
Bangladesh Bank. Credits in the agricultural sector repayable
within less than 12 months will also be included herein.

Short-term Micro-Credits will include any micro-credits for


less than Tk.50,000/= and repayable within less than 12 months,
be those termed in any names such as Non-agricultural credit,
Self-reliant Credit,

13
Types of Classification

i. Standard

Unclassified
ii. SMA
Loans &
Advances i.Sub-
standard
Classified ii. Doubtful
iii.
14 Bad/Loss
Basis for Loan Classification
(A) Objective Criteria
(B) Qualitative Judgment

(A)Objective Criteria :
1. Past Due/Over Due –Any i. continuous & ii. Demand loan not
repaid/renewed within the fixed expiry date for repayment or after
demand by bank will be treated as past due/ overdue from the
following day.
iii. Any installment(S) of a Fixed Term Loan is not repaid within the fixed
expiry date the amount of unpaid installment(S) will be treated as
past due/ overdue after 6 months of the expiry date.
iv. Short-term Agricultural & Micro Credit is not repaid within the fixed
expiry date will be treated as past due/ overdue after 6 months of
the expiry date.

15
Objective Criteria

Types of loan Unclassified Sub- Doubtf Bad/Lo


Standard SMA standa ul ss
rd
Continuous Loan <2 2 3 9 >=12
Demand Loan <2 2 3 9 >=12

Term Loan (up to <2 2 3 9 >=12


taka 10 lac)
Term Loan (more <2 2 3 9 >=12
than taka 10 lac)
Short Term 12 36 >=60
Agricultural Credit <12 12 36 >=60
&
Short Term Micro
16 Credit
(B). Qualitative Judgment:

 If any situational changes occur in the stipulations in terms of


which the loan was extended .
 If the capital of the borrower is impaired due to adverse conditions
 If the value of the securities decreases .
 If the recovery of the loan becomes uncertain due to any other
unfavorable situation, the loan will have to be classified on the
basis of qualitative judgment.
 Besides, if any loan is illogically or repeatedly re-scheduled or the
norms of re-scheduling are violated
 Instances of frequently exceeding the loan-limit are noticed
 Legal action is lodged for recovery of the loan
 The loan is extended without the approval of the proper authority,
it will have to be classified on the basis of qualitative judgment.
17
Maintenance of provision

Banks will maintain provision at the following rates in


respect of classified Continuous, Demand and Fixed Term
Loans:
***(BRPD Circular # 05 dt.-29/05/2013)&(BRPD Circular -
16 dated 18.11.14)
Unclassified : 0.25 % against SME
 5.00 % (consumer financing)
 2.00 % on
(i) Housing Finance and
(ii) Loans for Professionals to set up
business under Consumer Financing Scheme , loans to
brokerage House, Merchant Bank, Stock Dealers etc.
 1.00 % All others including off balance
sheet items (such as Bills for collection, L/C, L/G etc.)
18
Maintenance of provision

2. Classified
(2) Sub-standard : 20%
(3) Doubtful : 50%
(4) Bad/Loss : 100%

Short Term Agricultural and Micro Credits:


(1) All unclassified Credits :
- (irregular and regular) - 2.5%
(1) Sub-standard, Doubtful - 5%
(3) Bad/Loss - 100%
19 (BRPD Circular -16 dated 18.11.14)
Base for Provision

Whichever is higher. Provision should be minimum


20 15 % or higher as per guideline
Value of eligible securities

In the definition of 'Eligible Securities' as mentioned in the above paragraph


are the following :
 -100% of deposit under lien against the loan
 -100% of the value of government bond/savings certificate under lien.
 -100% of the value of guarantee given by Government or Bangladesh
Bank
 -100% of the market value of gold or gold ornaments pledged with the
bank.
 50% of the market value of easily marketable commodities kept under
control of the bank
 Maximum 50% of the market value of land and building mortgaged .
 50% of the average market value for last 06 months or 50% of the face
value, whichever is less, of the shares traded in stock exchange.
21
Thank You

22

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