GUIDELINE TO ESTABLISH A BANKING COMPANY IN BANGLADESH, PART 1

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. Bangladesh Bank must be satisfied that the following terms and conditions for the establishment of a new banking company in Bangladesh have been met:

1.     Status of the new commercial bank.

  • Must be a public limited company incorporated in

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

  • 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:

  • 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 Bangladesh Bank

4.     Sponsors and share capital contribution:

Initial minimum capital Taka 400.00 crore shall be provided by sponsors of the proposed bank.

  • 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
  • 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
  • The ceiling of 10% may be relaxed in the case of a bank set up as a joint venture with a foreign financial institution or banking
  • Sponsors holding 5% or more shares shall have to sign a capital maintenance agreement (CMA) stating that they would, jointly and severally inject additional capital if the bank ever fell below any minimum capital requirement. In case of failure to inject such capital within the stipulated time, the responsibility would fall on individuals within the sponsors group to bear the entire burden of the required injection.
  • The sponsors’ shares shall not be transferred within a period of three (3) years from the commencement of the business, without permission from Bangladesh
  • Sponsors’ contribution to the equity capital of the proposed bank will be required to be out of net worth declared to the Tax authorities in form IT10B; contribution out of borrowings from bank or non‐bank financial institution shall not be
  • If an individual or any member of his/her family is or had been a loan defaulter with a bank/financial institution at any time during the past five years shall not be eligible to apply as a sponsor of the proposed
  • An individual awaiting verdict of any undisposed lawsuit in any court/tribunal against his/her loan default status shall not be eligible to apply as a sponsor of the proposed
  • A tax assessee shall not be eligible to be a sponsor if he/she has any unpaid undisputed arrear of income tax assessed for the current year or any past
  • A tax assessee penalized or awaiting court/tribunal verdict on any suit for offence under Chapter XXI of Income Tax Ordinance, 1984 shall not be eligible to apply as a sponsor of the proposed
  • A tax assessee who has not submitted overdue tax‐return for the current year or who has undisposed tax prosecution reopened under section 93 of Income Tax Ordinance, 1984 shall not be eligible to apply as a sponsor of the proposed
  • Any assessee having unpaid liability for any undisputed customs duty, VAT, supplementary duty, excise duty or is awaiting verdict on any prosecution under Customs Act,1969; VAT Act,1991; Excise & Salt Act, 1944 in any court/tribunal shall not be eligible to be a sponsor of the proposed

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 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.

  • The Sponsors/Directors shall qualify the Fit and Proper Test criteria (see Annexure‐V) applicable for the Bank Directors in
  • His/her inclusion in the Board of Directors shall not contravene any law for the time being in force in Bangladesh and in the country of his/her present permanent domicile. He/she has not evaded any legal proceedings of any country for any criminal offences or crime against humanity except for offences of minor traffic violations
  • Bangladesh Bank shall evaluate proposed sponsors as to expertise and integrity (fit and proper test), and any potential for conflicts of interest. The fit and proper criteria include: (i) skills and experience in relevant financial operations commensurate with the intended activities of the bank; and (ii) no record of criminal activities or adverse regulatory judgments that make person unfit to uphold important position in a bank.

6.     Management of the proposed bank

  • A Director or Advisor to any banking company other than the proposed bank shall not be a Director of the proposed
  • The Member of Board of Directors shall be restricted to 13 (Thirteen).
  • Maximum number of directors from a family shall be restricted to two incase of the total shareholding of that family exceeds 5% and one director if the total shareholding is up to 5%.
  • The Chief Executive Officer (CEO) of the proposed bank shall have at least 15 (fifteen) years of experience in the banking

7.     Operation of the proposed bank.

  • The ratio of urban and rural bank branch has to be 1:1 or as per instruction issued by Bangladesh Bank from time to
  • New Bank has to ensure finance at least 5% of its total lending into agricultural sector or as per instruction issued by Bangladesh Bank from time to
  • Proposed bank should take part in Corporate Social Responsibility (CSR) activity. The new bank should spent 10% or more of its previous year’s net income to

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