1. Introduction:

Banking law focuses on banks and other financial institutions. Thus, to understand banking law, one must first understand what a bank is. There are at least three ways to define what a bank is.

First, a bank can be defined by its business entity. Generally, a bank is chartered by a federal or state government. The business entity must include the word bank or trust in the name of its business entity.

Second, a bank can be defined by the services it offers. Generally, a bank accepts deposits and makes loans. While it may provide other services, these are its core services.

Third, a bank can also be defined by its economic function. Banks are financial intermediaries that provide transaction services to customers. As a financial intermediary, banks allow diversification, economies of scale, expertise on transactions, convert illiquid investments to liquid ones, and a safe place to store money.

Transaction services involve an accounting system of exchange which permits transferring wealth through bookkeeping entries. It also involves maintaining accounts at the Federal Reserve. This is more efficient than transacting in currencies themselves. This function is unique to banks.

Much of banking law deals with various forms of payment, including checks, credit cards, debit transactions, letters and lines of credit, and wire transfers. These payment systems present consumers and banks with a myriad of issues, such as disputes as to payment, fraud, warranties, and errors and omissions.

Another area of banking law deals with negotiable instruments. Negotiable instruments are financial documents, such as promissory notes, that provide cash liquidity to the borrower. Legal issues associated with negotiable instruments include transfers of the document and liability for payment.

Yet another area of banking law involves various regulatory and compliance issues. Banks are heavily regulated. Both the federal and state governments regulate banks and various aspects of lending. Bank regulatory laws include various federal bank statutes to Federal Reserve Board Regulations. Bank regulation is playing an increasingly important role as the markets deal with the lack of enforcement of bank lending rules in the past ten years.

  1. Objectives:

The following are the objectives of this Law:

(a) To promote the development of banking institutions which will ensure the maintenance of financial stability, contribute to the economic, industrial and financial growth and enhance the position of the Sultanate in international financial affairs;

(b) To empower the central bank to issue currency and maintain the domestic and international value of that currency, to supervise banks and the banking business in the Sultanate and to advise the Government of the Sultanate on domestic and international economic affairs.

(c) To facilitate the expansion of the free market economy of the Sultanate through greater use of recognized banking institutions and methods; and

(d) To contribute to the fiscal and monetary development of the Sultanate through active participation in the international monetary community and in the proceedings, negotiations and decisions of international monetary organizations in which the Sultanate shall participate.

  1. Literature review:

3.1 Company Law:

  • RJSC
The Registrar of Joint Stock Companies and Firms (RJSC) is the sole authority which facilitates formation of companies etc.; and keeps track of all ownership related issues as prescribed by the laws in Bangladesh.

The Registrar is the authority of the Office of the Registrar of Joint Stock Companies and Firms, Bangladesh.

RJSC deals with the following types of entities:
i. Private companies
ii. Public companies
iii. Foreign companies
iv. Trade organizations
v. Societies, and
vi. Partnership firms
RJSC accords registration and ensures lawful administration of the entities under the provisions of applicable act as under:
i. Companies and Trade Organizations: Companies Act, 1994 (Amendment of Companies Act 1913)
ii. Societies: Societies Registration Act, 1860
iii. Partnership Firms: Partnership Act, 1932


    The major functions and activities of RJSC are
o    To incorporate Companies (including Trade Organization), Societies and Partnership Firms under the respective Companies Act 1994, Societies Registration Act 1860 and Partnership Act 1932, and
o    To administer and enforce the relevant statutory provisions of these acts in relation to the incorporated companies (including Trade Organization), societies and partnership firms.

    Documents Constituting a Registration Application       PRIVATE COMPANY   (Companies Act, 1994)

  1. Memorandum & Articles of Association, original + 2 copies
  2. Filled in Form I: Declaration on Registration of Company [Section 25].
  3. Filled in Form VI: Notice of Situation of Registered Office and of Any Change therein [Section 77].
  4. Filled in Form IX: Consent of Director to act [Section 92].
  5. Filled in Form X: List of Persons Consenting to be Directors [Section 92]
  6. Filled in Form XII: Particulars of the Directors, Manager and Managing Agents and of any change therein [Section 115]
  7. Evidence of Name Clearance.
  8. Special Adhesive Stamps and Treasury Challan from Bangladesh Bank to Treasury (photocopy) of Collecting the Stamps

PUBLIC COMPANY (Companies Act, 1994)

  1. Memorandum & Articles of Association, original + 2 copies
  2. Filled in Form I: Declaration on Registration of Company [Section 25].
  3. Filled in Form VI: Notice of situation of Registered Office and of any change therein [Section 77].
  4. Filled in Form IX: Consents of Directors to Act [Section 92].
  5. Filled in Form X: List of Persons Consenting to be Directors [Section 92].
  6. Filled in Form XII: Particulars of the Directors, Manager and Managing Agents and of any Change therein [Section 115].
  7. Filled in Form XIV: Declaration before Commencing Business in case of Company Filing Statement in lieu of Prospectus [Section 150]
  8. Filled in Form XI (if necessary): Agreement to Take Qualification Shares in Proposed Company [Section 92].
  9. Special Adhesive Stamps and Treasury Challan from Bangladesh Bank to Treasury (photocopy) of Collecting the Stamps

FOREIGN COMPANY (Companies Act, 1994)

  1. Filled in Form XXXVI – Charter or Statutes or Memorandum and Articles of the Company or Other Instrument Constituting or Defining the Constitution of the Company.
  2. Filled in Form XXXVII – Notice of the Address of the Registered or Principal Office of the Company.
  3. Filled in Form XXXVIII – List of Directors and Managers [Section 379].
  4. Filled in Form XXXIX – Return of Persons Authorized to Accept Service [Section 379].
  5. Filled in form XLII: Notice of Situation of the Principal Place of Business in Bangladesh or of any Change therein [Section 379 (I)].
  6. Encashment Certificate Obtained From any Scheduled Bank.     g. Permission from Board of Investment of Bangladesh.

TRADE ORGANIZATION (Companies Act, 1994)

  1. Memorandum and Articles of Association, original + 2 copies.
  2. Filled in Form I: Declaration on Registration of Company [Section 25].
  3. Filled in Form VI: Notice of Situation of Registered Office and of any Change therein [Section 77].
  4. Filled in Form IX: Consent of Director to act [Section 92].
  5. Filled in Form X: List of Persons Consenting to be Directors [Section 92].
  6. Filled in Form XII: Particulars of the Directors, Manager and Managing Agents and of any change therein [Section 115].
  7. Government License (Trade License from the Ministry of Commerce).
  8. Evidence of Name Clearance.
  9. Special adhesive stamps and Treasury Challan from Bangladesh Bank to Treasury (photocopy) of Collecting the Stamps.

SOCIETY (Societies Registration Act, 1860)

  1. Memorandum of Association
  2. Evidence of Name Clearance.

PARTNERSHIP FIRM (Partnership Act, 1932)

  1. Filled in FORM- I: Statement Containing the Particulars of the Firm for Registration.
  2. Deed of Agreement on Partnership.

3.2 Effective Insolvency and Creditor Rights Systems

The Bangladeshi insolvency regime is governed primarily by the 1997 Bankruptcy Act, supported by provisions of the Companies Act of 1994, the Banking Companies Act of 1991 (as amended), and the Finance Institution Act of 1993. The laws provide the mandate for money loan courts, bankruptcy courts, and dedicated courts that handle the recovery of debts for banks and other financial institutions. However, the U.S. Department of Commerce’s 2007 Country Commercial Guide noted that this legislation is largely ineffective in addressing insolvent companies. Banks prefer alternatives to the bankruptcy courts, including demanding blanket guarantees from company directors as a condition for issuing loans. Implementation of creditor rights is weak. According to the World Bank’s Global Insolvency Law Database, Bangladesh is a participant in the Forum on Asian Insolvency Reform (FAIR), a pan-Asian organization dedicated to addressing the fundamental weaknesses in insolvency law in the region. In its fifth meeting, in 2006, FAIR participants began discussion of a proposal to create an online regional network designed to facilitate sharing of information regarding insolvency reforms as they occur across the region. The 2009 “Doing Business Guide” produced jointly by the International Bank for Reconstruction and Development and the World Bank noted that no reforms dealing with business closing issues were slated to be enacted in 2009.

3.3 Money Laundering act:

The 2002 Money Laundering Prevention Act (MLPA) laid the original foundation of Bangladesh’s anti-money laundering (AML) framework. However, the government has sought to expand the regime and the Money Laundering Prevention Ordinance (MLPO) was introduced in April 2008; in February 2009 it was reissued as an act of parliament by the new government. In June 2008 the government also enacted the Anti-Terrorism Ordinance which criminalised terrorist financing for the first time. Similarly, this was reissued as an act in early 2009.

Money laundering is a problem in Bangladesh. Much of the economy is cash-based, which means that many transactions bypass regulated financial institutions. The popular attractiveness of the hawala, or ‘hundi’, network has been increased by tight restrictions on currency transfers imposed by the government. Corruption is a major concern in Bangladesh and is responsible in part for the large role that the country plays in regional smuggling. Much of the smuggling is undertaken for purposes of tax avoidance, but arms and drugs are also smuggled through the country. Funds from these operations tend to be laundered via the financial markets.

The political environment has been turbulent of late. The army-backed caretaker government, headed by Fakharuddin Ahmed, stepped down from power in January 2009, with the election of Sheikh Hasina and her Awami League. Nevertheless, Bangladesh remains badly governed, and a very fractured, highly politicised society.

Macro Basics
GDP (US$m) 79,554
Population (m) 160
GDP/Capita (US$) 497
Currency BDT
Literacy Rate % 48
Public Sector/GDP % 14
Regulatory Framework
FATF 40+9 FC 1
FATF 40+9 PC 34
FATF 40+9 NC 14
Financial Environment
Financial Sector assets US$ bn 39
…as % of GDP 49
Number of Banks 44
..per 1,000 people 0.0003
Rate of Corporation Tax (%) 27.5
Avg govt salary (US$) 11,100


Money Laundering Indicators   Low Med High
Laundering Convictions NA
Informal Economy as % of GDP 36
Free trade zones 3
Estimated value of illegal drugs trade US$m NA
Corruption Rating ( Astra) 9
Organised Crime Rating (Astra) 7
Violent Crime Rating (Astra) 7
Ships reg per 1000 pop 0.002
Registered Companies per 1000 pop 0.4
Per Gram of Cocaine (US$) NA

3.4 Laws & practices of banking: Investment Corporation of Bangladesh.

ICB means The Investment Corporation of Bangladesh. The Investment Corporation of Bangladesh  (ICB) was established on 1 October 1976, under “The Investment Corporation of Bangladesh Ordinance 1976”. The establishment of ICB was a major step. To encourage and   broaden the base of investments and also to develop the capital market is one of the major objectives. There are different types of business policy which ICB provide. To provide financial assistance to projects subject of there economic and commercial viability. Adoption and application of corporate governance principles and  guideline receive unremitting attention of ICB. The fundamental features of corporate governance standards exercised by ICB are among others, peruse ethical norms in all operations ensure full disclosure and greater transparency in financial statements, generate reliability and trust our thickness in business transactions optimize the quality of services to clients and safe guard the interest of the shareholders and others stakeholders.


  • Direct purchase of shares and    debentures including placement and equity participation
  • Providing lease finance singly and through syndication
  • Managing existing mutual funds and unit fund
  • Managing portfolios of existing business
  • Providing advance against ICB unit and mutual fund certificates and ICB AMCL Unit Fund certificate
  • Providing consumer credit
  • Providing bank guarantee
  • To act as trustee and custodian
  • Participating in and financing of joint-venture  companies
  • Providing investment counseling to investors
  • Participating in government divestment programe
  • Introducing new business products suiting market demand
  • To supervise the activities of the subsidiary companies
  • Dealing in other matters related to capital market
  • Islamic Banking:

Alongside the conventional interest based banking system, Bangladesh entered into an Islamic banking system in 1983. At present, out of 48 banks in Bangladesh, 7 PCBs are operating as full-fledged Islamic banks and 20 branches of 9 conventional banks are partially involved in Islamic banking. The Islamic banking industry continued to show strong growth since its inception in 1983 to June 2009 in tandem with the growth in the economy, as reflected by the increased market share of the Islamic banking industry in terms of assets, financing and deposits of the total banking system.

  • Liquidity:

Commercial bank’s demand and time liabilities are at present subject to a statutory   liquidity requirement (SLR) of 18 percent inclusive of average 5 percent (at least 4.5 percent in any day) cash reserve requirement (CRR) on bi-weekly basis. The CRR is to be kept with the BB and the remainder as qualifying secure assets under the SLR, either in cash or in government securities. SLR for the banks operating under the Islamic Shariah is 10 percent and the specialised banks (except Basic Bank Ltd.) are exempted from maintaining the SLR. Liquidity indicators measured as percentage of demand and time liabilities (excluding inter-bank items) of the banks indicate that all the banks had excess liquidity.

     3.7 Asset Quality

The asset composition of all commercial banks shows the concentration of loans and advances (63.6 percent). The high concentration of loans and advances indicates vulnerability of assets to credit risk, especially since the portion of non-performing assets is significant. A huge non-performing loan portfolio has been the major predicament of banks particularly of the state-owned commercial banks.

  • Capital Adequacy

Capital adequacy focuses on the total position of banks’ capital and protects the depositors from the potential shocks of losses that a bank might incur. It helps absorbing major financial risks (like credit risk, market risk, foreign exchange risk, interest rate risk). Banks have to maintain Capital Adequacy Ratio (CAR) of not less than 10.0 percent with at least 5.0 percent in core capital or Taka 2.0 billion as capital, whichever is higher.

  • Management Soundness

Sound management is the most important pre-requisite for the strength and growth of any financial institution. Since indicators of management quality are primarily specific to individual institution, these cannot be easily aggregated across the sector. In addition, it is difficult to draw any conclusion regarding management soundness on the basis of monetary indicators, as characteristics of a good management are rather qualitative in nature. Nevertheless, the total expenditure to total income, operating expenses to total expenses, earnings and operating expenses per employee, and interest rate spread are generally used to gauge management soundness. In particular, a high and increasing expenditure to income ratio indicates the operating inefficiency that could be due to flaws in management.

  • Earning & profitability:

Strong earnings and profitability profile of a bank reflect its ability to support present and future operations. More specifically, this determines the capacity to absorb losses by building an adequate capital base, finance its expansion and pay adequate dividends to its shareholders. Although there are various measures of earning and profitability, the best and widely used indicator is return on asset (ROA), which is supplemented by return or equity (ROE) and net interest margin (NIM). Earnings as measured by return on assets (ROA) and return on equity (ROE) vary largely within the industry.

  1. Case study on the basis of a Bank:


Bangladesh Bank was established under the supervision of the Ministry of Finance after independence of Bangladesh with the Bangladesh Bank Order, 1972 to control the monetary and credit system of Bangladesh. The key objectives of the bank was to stabilizing domestic monetary value and maintaining a competitive external per value of Bangladesh taka towards fostering growth and development of the country’s productive resources in the best national interest. The bank’s functions as mentioned in the Bangladesh Bank Order 1972 and the Bangladesh Bank (Amendment) Act 2003 are: to formulate and implement monetary policy and to formulate and implement intervention policies in the foreign exchange markets; give advice to the government on the interaction of monetary policy with fiscal and exchange rate policy; hold and manage the official foreign reserve of Bangladesh to promote, regulate and ensure a secure and efficient payment system, including the issue of bank notes. Bangladesh Bank also regulates and supervises other banking companies and financial institutions in the country. However recently there are lots of debates on ‘the full autonomy of Bangladesh Bank’. This autonomy mainly means both the administrative and operational autonomy.

Bangladesh Bank Order, 1972

(President’s Order No. 127 of 1972)

4.1 Preliminary

(1) This Order may be called the Bangladesh Bank Order, 1972

(2) It extends to the whole of Bangladesh.

(3) It shall come into force at once and shall be deemed to have taken effect on the 16th day of December, 1971. In this Order, unless there is anything repugnant in the subject or context, –

(a) “appointed day” means the 16th day of December, 1971;

(b) “approved foreign exchange” means currencies declared as such by any notification under Article 18;

(c) “Bank” means the Bangladesh Bank;

(d) “Bank Notes” means notes made and issued by the Bank in accordance with Article 23;

(e) “Board” means the Board of Directors of the Bank;

(f) “Co-operative Bank” means any co-operative society or co-operative bank including the apex co-operative bank registered or any other law for the time being in force relating to cooperative societies, one of objectives of which is to provide financial accommodation to its members;

(g) “Director” means a Director of the Bank;

(h) “Governor” and “Deputy Governor” means respectively the Governor and Deputy Governor of the Bank;

(i) “Government” means the Government of the People’s Republic of Bangladesh;

(j) “Scheduled Bank” means a bank for the time being included in the list of banks maintained under sub-clause (a) of clause (2) of Article 37;

(k) “State Bank” means the State Bank of Pakistan constituted under the State Bank of Pakistan Act, 1956; and

(l) “Taka coin” means one Taka coin and one Taka note and two Taka coin and two Taka note which are legal tender in Bangladesh.

4.2 Targets and Formulation of Monetary Policy

  1. Targets of Monetary Policy

-Growth of money supply has to be consistent with GDP growth rate to ensure a stable inflation rate;

– Credit flow has to be channeled to productive activities to ensure faster economic growth.

  1. Formulation of Monetary Policy
  • Growth rate of broad money (total of currency, demand and time deposits) is programmed considering projected GDP growth, inflation and income velocity of money [GDP to broad money supply (M2) ratio];
  • In line with this, annual levels of foreign assets and domestic credit to public and private sector are also programmed.

4.3 Implementation of Monetary Policy

To keep broad money supply on desired growth path, Money and Credit Program is implemented by different ways:

– Changes in the broad money supply is effected by increasing/decreasing reserve money (total of currency issued both by government and the BB, and balances of banks with the BB);

– Auctions of government treasury bills and bonds and auction of repo and reverse repo are used;

–  Supply of broad money can be influenced through changing cash reserve ratio (CRR) and effecting market interest rates by varying discount rate of central bank.

4.4 Management of Clearing System of Check/Bill etc.

  • Bangladesh Bank manages daily clearing of checks/bill/drafts etc. In cities/towns where BB has no Offices, Sonali Bank performs the function on behalf of BB.
  • Clearing functions in Dhaka and Chittagong are partly computerized. Similar system is being introduced in Rajshahi by the first half of 2004. Bogra, Sylhet and Khulna will follow shortly;
  • ‘Same day Clearing’ services for checks valued Tk. 5 lakhs or more is available in Dhaka since 4 Oct. 2003;
  • Mechanism for clearing of checks/bills drawn on a bank of a different town within shortest possible time is being processed;
  • Introduction of credit card/debit card by banks are being encouraged;
  • Automated check clearing system using machine readable check would be introduced soon, as a part of the new IT platform of BB.
  • The bank also sells government treasury bills on tender, prize bonds and different types of saving certificates (sanchayapatra). The bank acts as the clearing house of the scheduled banks
  • Reduction of Non Performing Loans:
  • Regulatory and Legal Reforms -1
  • Enactment of Financial Loan Court Act 2003: Setting up of special courts dealing exclusively with default loans; prescribing time limits for courts to give judgment on original and appeal suits; mandating banks to sell collaterized security before filing cases; provision for alternative dispute resolution mechanism;
  • Loan rescheduling criteria spelled out and rationalized by making successive rescheduling more costly;
  • Guidelines for loan write-off issued;
  • The single borrower/single group-borrowers credit limit fixed; large loan limit tagged to bank’s NPL ratio.
  • Regulatory & Legal reforms-2
  • Encouraging syndication of several banks for large loans and issuance of guidelines for restructuring such loans;
  • Announcing incentives for loan recovery to encourage bank employees to put extra effects for recovery.
  • Signing of MOUs with the nationalized commercial banks; limiting annual credit growth rate, fixation of single borrower limit, restriction on capital expenditure;
  • Establishment, incorporation, capital & management

On the appointed day all the shares of the State Bank held in Bangladesh which have not  already vested in the Government by or under any other law for the time being in force, shall by virtue of this Order, be deemed to have been vested in, and allotted to, the Government free from any trust, mortgage, charge, lien, interest, or other encumbrance whatsoever.

  4.7Business & functions of the bank:

The accepting of money on deposit from and the collection of money for the Government, foreign Governments, domestic and foreign banks, domestic and foreign financial institutions and local authorities with or without interest;

  4.8 Prudential Regulations for

       Banks : selected issues


The process of gradually upgrading the policies on loan classification and provisioning to the international level is going on. Measures have been taken to strengthen the credit discipline and the process of classification has been simplified. The following revised policies on loan classification and provisioning has been issued amending the previous circulars in this regard: –

  • Categories of Loans

All loans and advances will be grouped into 4(four) categories for the purpose of classification, namely (a) Continuous Loan (b) Demand Loan (c) Fixed Term Loan and (d) Short-term Agricultural and Micro Credit.

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.

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.

Fixed Term Loan: The loans, which are repayable within a specific time period under a specific repayment schedule will be treated as Fixed Term Loans.

Short-term Agricultural Credit will include the short-term credits as listed under the Annual Credit Program issued by the Agricultural Credit Department of Bangladesh Bank.


Board of directors and management of a bank should comprise of the competent and

professionally skilled persons with a view to ensuring good and corporate governance in the bank management. It is also inevitable to have specific demarcation of responsibilities and authorities between these controlling bodies over bank’s affairs. In absence of specific  division of responsibilities and authorities, even in spite of these bodies’ being formed with skilled and efficient persons, the desired goals of an institution cannot be achieved due to lack of transparency and accountability of all concerned. Such kind of situation is more undesirable in an institution like bank-company as it deals with huge public money and interests of the depositors along with lending and risk management issues, is outlined as follows:-

  1. Responsibilities and authorities of the board of directors:

(a) Work-planning and strategic management:

(i) The board shall determine the objectives and goals and to this end shall chalk out

strategies and work-plans on annual basis. It shall specially engage itself in the affairs

of making strategies consistent with the determined objectives and goals and in the

issues relating to structural change and reorganization for enhancement of institutional

efficiency and other relevant policy matters. It shall analyze/monitor at quarterly rests the development of implementation of the work-plans.

(ii) The board shall have its analytical review incorporated in the Annual Report as regard the success/failure in achieving the business and other targets as set out in its annual

work-plan and shall apprise the shareholders of its opinions/recommendations of future plans and strategies. It shall set the Key Performance Indicators (KPIs) for the CEO and other senior executives and have it evaluated at times.

(b) Lending and risk management:

(i) The policies, strategies, procedures etc. in respect of appraisal of loan/investment proposal, sanction, disbursement, recovery, reschedulement and write-off thereof shall be made with the board’s approval under the purview of the existing laws, rules and regulations. The board shall specifically distribute the power of sanction of loan/investment and such distribution should desirably be made among the CEO and his subordinate executives as much as possible. No director, however, shall interfere, directly or indirectly, into the process of loan approval.

(ii) The board shall frame policies for risk management and get them complied with and shall monitor at quarterly rests the compliance thereof.

(c) Internal control management:

The board shall be vigilant on the internal control system of the bank in order to attain and maintain satisfactory qualitative standard of its loan/investment portfolio. It shall review at quarterly rests the reports submitted by its audit committee regarding compliance of recommendations made in internal and external audit reports and the Bangladesh Bank inspection reports.           

(d) Human resources management and development:

  1. Policies relating to recruitment, promotion, transfer, disciplinary and punitive measures, human resources development etc. and service rules shall be framed and approved by the board. The chairman or the directors shall in no way involve themselves or interfere into or influence over any administrative affairs including recruitment, promotion, transfer and disciplinary measures as executed under the set service rules. No member of the board of directors shall be included in the selection committees for recruitment and promotion to different levels. Recruitment and promotion to the immediate two tiers below the CEO shall, however, rest upon the board. Such recruitment and promotion shall have to be carried out complying with the service rules i.e., policies for recruitment and promotion.
  2. The board shall focus its special attention to the development of skills of bank’s staff in different fields of its business activities including prudent appraisal of loan/investment proposals, and to the adoption of modern electronic and information technologies and the introduction of effective Management Information System (MIS). The board shall get these programs incorporated in its annual work plan.

(e) Financial management:

(i) The annual budget and the statutory financial statements shall finally be prepared with

the approval of the board. It shall at quarterly rests review/monitor the positions in respect of bank’s income, expenditure, liquidity, non-performing asset, capital base and adequacy, maintenance of loan loss provision and steps taken for recovery of defaulted loans including legal measures.

(ii) The board shall frame the policies and procedures for bank’s purchase and procurement activities and shall accordingly approve the distribution of power for making such expenditures. The maximum possible delegation of such power shall rest on the CEO and his subordinates. The decision on matters relating to infrastructure development and purchase of land, building, vehicles etc. for the purpose of bank’s business shall, however, be adopted with the approval of the board.

(f) Formation of supporting committees:

For decision on urgent matters an executive committee, whatever name called, may be formed with the directors. There shall be no committee or sub-committee of the board other than the executive committee and the audit committee. No alternate director shall be included in these committees.

(g) Appointment of CEO:

The board shall appoint a competent CEO for the bank with the approval of the Bangladesh Bank.


As a prudential measure intended for ensuring improved risk management through restriction on credit concentration, Bangladesh Bank has from time to time advised the scheduled banks in Bangladesh to fix limits on their large credit exposures and their exposures to single and group borrowers. In order to enable the banks to improve their credit risk management further, Bangladesh Bank is issuing this circular by consolidating all the instructions issued so far and incorporating some amendments to the previous circular.

The banks will be able to sanction large loans as per the following limits set

against their respective classified loans :

Rate of net classified loans The highest rate fixed for large loan

against bank’s total loans & advances

Upto 5% 56%
More than 5% but upto 10% 52%
More than 10% but upto 15% 48%
More than 15% but upto 20% 44%
More than 20% 40%



In terms of the provisions incorporated in Bank Companies Act, 1991, banks can declare their dividend without prior approval of Bangladesh Bank subject to compliance of the following conditions: –

(1) No dividend in cash or in bonus share (keeping in consideration the order issued on 11.09.01 by the Securities and Exchange Commission in respect of issuance of bonus share) can be declared with short-fall in capital of the bank.

(2) Banks shall have to comply with the following conditions in respect of maintenance of provision:

(a) Provision against adversely classified loans shall have to be maintained at the rate(s)

specified by Bangladesh Bank;

(b) General provision 1% against unclassified loans shall have to be maintained;

(c) Provision against ‘Investment’ and ‘Other Assets’ shall have to be maintained at the rate(s) specified by Bangladesh Bank.

(3) Prior to declaration of dividend, the concerned bank shall have to obtain specifically a certificate from the external auditor to this effect that provisions have been properly maintained having followed/complied with the rules, regulations and norms issued by Bangladesh Bank and there is no short-fall in respect of maintenance of capital adequacy and provision.

(4) In case of declaring dividend in cash at higher rate i.e., beyond 20% , a sum equal to the amount of dividend in excess of 20% shall have to be kept deposited in the Dividend

Equalization Account which shall be treated as `Core Capital’ of the bank .

(5) If any post-facto review during on-sight inspection by Bangladesh Bank reveals any

deviation in compliance of the above conditions in declaring dividend of any year, prior

permission from Bangladesh Bank shall have to be obtained before declaration of dividend for the next year.

  1. With the rescinding of F.F. Circular No. 16 dated 31-3-1982 and BCD Circular No. – 7, dated 12-3-1986 on the captioned subject, the banks are now free to fix the fees and commissions relating to the services offered by them to their customers.
  2. In applying the fees there should be no discriminations among customers for similar services. In other words, all customers are required to be treated at par for similar services.
  3. Each bank will prepare its schedule of charges and commissions etc. and ensure that these are publicly accessible at each branch.
  4. Each bank will forward to BCD (now BRPD), Bangladesh Bank a copy of the schedule of charges and commissions. Any changes to such schedules as may be made from time to time must be forwarded to Bangladesh Bank forthwith.
End of period Bank rate Call money market’s weighted average interest rates on Schedule banks’ weighted average interest rates on Spread
Borrowing Lending Deposits Advances
January 5.00 11.64 11.64 6.39 11.34 4.95
February 5.00 9.54 9.54 6.54 11.41 4.87
March 5.00 10.35 10.35 6.80 11.95 5.15
April 5.00 9.50 9.50
May 5.00 8.64 8.64
June 5.00 10.93 10.93
January 5.00 4.83 4.83 6.31 11.51 5.20
February 5.00 4.51 4.51 6.23 11.47 5.24
March 5.00 3.51 3.51 6.09 11.30 5.21
April 5.00 4.35 4.35 6.09 11.32 5.23
May 5.00 5.07 5.07 6.09 11.31 5.22
June 5.00 6.62 6.62 6.01 11.31 5.30
July 5.00 3.33 3.33 6.00 11.24 5.24
August 5.00 6.36 6.36 6.04 11.23 5.19
September 5.00 6.97 6.97 6.01 11.17 5.16
October 5.00 6.19 6.19 6.03 11.21 5.18
November 5.00 11.38 11.38 6.07 11.23 5.16
December 5.00 33.54 33.54 6.08 11.34 5.26
January 5.00 9.76 9.76 7.17 11.73 11.73
February 5.00 9.23 9.23 7.08 11.67 4.59


Rate of Inflation

(as measured by CPI, base 1995-96)



June, 2011


May, 2011


June, 2010

Point to point               10.17%              10.20%                8.70%


MonthlyAverage(Twelve Month)                8.80%                8.67%                7.31%


E-Banking in Bangladesh: Some Policy Implications

Despite huge demand from the business community as well as the retail customers particularly the urban customers, electronic banking (e-banking) in Bangladesh is still at a budding state due mainly to a number of constraints such as unavailability of a backbone network connecting the whole country; inadequacy of reliable and secure information infrastructure especially telecommunication infrastructure; sluggish ICT penetration in banking sector; insufficient legal and regulatory support for adopting e-banking and so on.1 In Bangladesh, telephone connectivity is inadequate, cost of PCs are still beyond purchasing capacity of most people, internet connection is costly, IT literacy is yet to reach satisfactory level, banking sector lacks skilled IT personnel, and huge investment requirement for establishing technology based banking services are prime drawbacks. In this backdrop, with high potential of e-banking, Bangladesh Bank as the regulator of banking and financial sector, government of Bangladesh, and the scheduled banks together need to come forward with necessary initiatives for successful introduction of e-banking in Bangladesh. The concept of e-banking includes all types of banking activities performed through electronic networks. It is the most recent delivery channel of banking services which is used for   both business-to-business (B2B) and business-to-customer (B2C) transactions. In this context, it is important to recognize that the present state of technology based banking in Bangladesh permits the banks to perform B2C transactions only whereas B2B transactions are yet to be established. Successful implementation of e-banking will help to conduct both B2C and B2B transactions.

 5.1 Present Status of e-Banking

E-banking at per international standard is yet to develop in Bangladesh. At present, several private commercial banks (PCBs) and foreign commercial banks (FCBs) offer limited services of tele banking, internet banking, and online banking facilities working within the branches of individual bank in a closed network environment. As a part of stepping towards e-banking, the FCBs have played the pioneering role with adoption of modern technology in retail banking during the early 1990s whereas the state-owned commercial banks (SCBs) and PCBs came forward with such services in a limited scale during the late 1990s.  Moreover, the banking industry as a whole, except for the four specialized banks (SBs), rushed to offer technology based banking services during the middle of the current decade. The existing form of e-banking that satisfies customer demand in banking activities electronically throughout the world are PC banking or PC home banking that include online banking, internet banking, mobile banking, and tele banking.

  • PC banking or PC home banking: PC banking refers to use of personal computer in banking activities while under PC home banking customers use their personal computers at home or locations outside bank branches to access accounts for transactions by subscribing to and dialing into the banks’ Internet proprietary software system using password. PC banking or PC home banking may be categorized into two types such as online banking and Internet banking.
  • Online banking: Transactions in online banking are performed within closed network for which the customer use specialized software provided by the respective bank. International standard online banking facilities are expanding in Bangladesh. At present, 29 scheduled banks offer any branch banking facilities through their respective bank online network that provides facilities like transaction through any branch under the respective bank online network; payment against pay order or pay order encashment, demand draft encashment, opening or redemption of FDR from any branch of the same bank; remote fund transfer, cash withdrawal, cash deposit, account statement, clearing and balance enquiry within branches of the same bank; and L/C opening, loan repayment facility to and from any branch of respective bank under its own online network. Inter-bank transactions or transaction between inter bank branches are yet to expand. Under the modernization program of the National Payment and Settlement System, Bangladesh Automated Clearing House (which includes Bangladesh Automated Cheque Processing System and Bangladesh Electronic Fund Transfer Network) is scheduled to come into effect from September 2009 followed by implementation of online banking at per international standard in near future.
  • Internet banking: Internet banking refers to the use of internet as a remote delivery channel for banking services which permits the customer to conduct transactions from any terminal with access to the internet. It is the WWW through which banks can reach their customers directly with no intermediaries. Internet banking in true sense is still absent in Bangladesh. Only 7 out of 48 banks are providing some banking services via internet that include account balance enquiry, fund transfer among accounts of the same customer, opening or modifying term deposit account, cheque book or pay order request, exchange rate or interest rate enquiry, bills payment, account summary, account details, account activity, standing instructions, loan repayment, loan information, statement request, ,cheque status enquiry, stop payment cheque, refill prepaid card, password change, L/C application, bank guarantee application, lost card (debit/credit) reporting, pay credit card dues, view credit card statement, or check balance. The core banking activities like fund transfer to third party, cross border transactions and so on are still uncovered by internet banking offered by the scheduled banks in Bangladesh.
  • Mobile banking: Mobile banking (also known as M-banking or SMS banking) is a term used for performing balance checks, account transactions, payments etc. via a mobile device such as a mobile phone. Mobile banking is most often performed via SMS or the Mobile Internet but can also use special programs called clients downloaded to the mobile device. The standard package of activities that mobile banking covers are: mini-statements and checking of account history; alerts on account activity or passing of set thresholds; monitoring of term deposits; access to loan statements; access to card statements; mutual funds/equity statements; insurance policy management; pension plan management; status on cheque, stop payment on cheque; orderingcheck books; balance checking in the account; recent transactions; due date of payment (functionality for stop, change and deleting of payments); PIN provision, change of PIN and reminder over the internet; blocking of (lost/stolen) cards; domestic and international fund transfers; micro-payment handling; mobile recharging; commercial payment processing; bill payment processing; peer to peer payments; withdrawal at banking agent;3 and deposit at banking agent. Despite huge prospects, only a few banks adopted mobile banking in Bangladeshduring the last year.
  • Tele banking: Tele banking refers to the services provided through phone that requires the customers to dial a particular telephone number to have access to an account which provides several options of services. Despite huge potential, tele banking services have not been widened enough in daily banking activities in Bangladesh. Only four banks so far provide a few options of tele banking services such as detail account information, balance inquiry, information about products or services, ATM card activation, cheque book related service, bills payment, credit card service and so on. Funds transfer between current, savings and credit card account, stock exchange transactions etc are still inaccessible through tele banking in Bangladesh.
  1. Conclusion & Recommendation

To say that banks have a lot to think about in 2011 would be a gross understatement. This is, of course, particularly so on regulatory matters. There is so much going on, with so little time to pause and reflect, that there is a real risk that the number and complexity of regulatory developments leaves banks and, in particular, their senior management, constantly fighting fires and missing the bigger picture. This book is an attempt to assist general counsel, other in-house counsel, compliance professionals and senior executives of banks by providing a reference guide to some key banking regulatory topics in the countries that it covers. In its place, we have seen a patchwork of different approaches to fundamental questions of banking regulation emerge around the world, yet no really convincing practical solution yet to the ‘too big to fail’ problem. There also remains the vexed question of how, if at all, the principles underlying banking regulation might be applied to that vast array of activities collectively (and somewhat misleadingly) referred to as the ‘shadow banking sector’.

On a more positive note, one real and long-term change to the regulatory landscape that we have seen is that more large banks now realize the importance of engaging with this subject in a positive way at all levels of their organization. In practice, this does not just mean that banks are devoting more resources to dealing with regulatory matters. Perhaps more importantly, it also means that many of them are beginning to confront the challenges they face.

It is only by confronting these challenges that banks will play a full part in the development of the solutions that actually find favor with regulators and governments. Many of the topics that the book covers are central to the debates that all banking groups should be having on the issues mentioned above. Positive engagement with regulators is central to this. It is now no exaggeration to say that, in the medium to long term, there are severe and perhaps terminal threats to the business models of banks that do not have sufficiently positive and proactive relationships with their regulators to find workable solutions to the many problems associated with the introduction of new regulatory principles and rules.


  1. Estandards forum (financial standards foundation)
  2. Education Carnival Pedia free study article, report for student
  3. Wikipedia the free encyclopedia
  4. The companies act 1994 (Bangladesh) (PDF)
  5. Gray & co. Lawyers . abogados
  6. The impact of Bank regulation (PDF)
  7. E-Banking(PDF)
  8. bangladeshbank.org