One of the major news items in the Financial Express, published on July 3, 2013, was titled 'Top 20 defaulters: BB to seek information from banks about recovery status'. The report reveals that the Bangladesh Bank is going to ask 41 scheduled banks to report the status of recovery of default loans of each of their top 20 defaulters. According to the report, default loans of 820 top defaulters of 41 scheduled banks stood at more than Tk 209.201 billion as of December last. However, the overall default loans in the banking sector were reported to be Tk 510.19 billion as of December 31, 2012. The total outstanding loan was much higher. The figure was estimated at Tk 4,286.93 billion as on March 31, 2013. The news story brings forth only one aspect of the performances of the banking sector. For last 40 years, a similar amount was written off; it was a drainage of public resources. It went to the pockets of a fortunate few who joined the class of big business shots.
Default loans affect the banking sector. The recent banking scams in Bangladesh have shattered the confidence of the depositors and the borrowers. Many banks, both in public and private sectors, were alleged to be involved. Considering the paramount importance of 'confidence' factor in the overall financial market, this writer restrains himself from naming those banks. The fact is that some fraudulent businessmen, fortune-seekers, political bosses, corrupt officials and politicised directors are reported to be involved in such banking scandals. For such scandals and many other crises in the banking sector, a question about the supervisory role of the central bank has come to the fore.
The Bangladesh Bank Order, 1972, the Bank Company Act, 1991 and the Financial Institution Act, 1993 provided ample power to the Bangladesh Bank in this regard. However, many powers are vested with the government. Informed sources know that the weak supervision of the central bank is responsible to a great extent for the prevailing crises in the banking sector. The Bangladesh Bank performs its supervisory activities in two ways. One is on-site supervision and the other is off-site supervision. The later is based on the examination of various reports and statements.
There are some departments of the Bangladesh Bank through which the supervision work is done. These are the Department of Banking lnspection, the Agriculture Credit Inspection Department, the Foreign Exchange Inspection Department, the Inspection Implementation Department, the Banking Operation and Development Department and the Banking Regulation and Policy Department.
Some departments like the Bank Inspection Department, the Agricultural Credit Inspection Department and the Foreign Exchange Inspection Department hold annual inspection. In addition to normal inspection, the Bangladesh Bank in recent times is carrying out special inspection to investigate fraud-forgery and complaints about serious irregularities and allegations. These post-facto investigations are not yielding effective results. The political influence and the lack of co-ordination among the inspecting departments are responsible for such non-effective outcome. In some cases, the actions suggested by the Bangladesh Bank are not adhered to by the government. For example, the reconstitution of the Board of Directors of the Sonali, the Janata and other banks against the backdrop of recent scams could not escape political consideration. The departments in the Bangladesh Bank in some cases have not been found to exercise its prudential powers. For example, the principal function of the Banking Regulation and Policy Department is to frame prudential regulations and to see whether these regulations are being followed. It is supposed to take proper action against the banking company or its directors or its chief executive officer under the Bank Company Act if there is a violation of rules and regulations. But some informed sources find the Banking Regulation and Policy Department more engaged in the approval of large loans, loan proposal of the directors of scheduled banks and rescheduling of loans. This is not a regulatory job. It is a managerial task. The approval of large loans and those of the directors should be covered by 'prudential' regulations and the Bangladesh Bank would supervise and monitor it. The managerial job should be done away with.
Inspection can be rationalised. For example, those banks which are 'poor' under the CAMEL Rating should come under comprehensive inspection every year and under special inspection in every six months. Those banks which are rated as 'strong' may have inspection in 24 months instead of 12 months.
As mentioned earlier, the Bangladesh Bank has ample powers under the Bangladesh Bank Order, 1972, the Bank Company Act, 1991 and the Financial Institutions Act 1993. But in view of the recent bank scams and the prevailing irregularities, there should be a high-powered Bank Supervision Committee and a Special Investigation Department to investigate serious allegations and irregularities that shake confidence on the banking sector.
The Bangladesh Bank has a Board of Directors (this writer was one of them for about two years). The Board is not responsible for formulation of the monetary policy or the foreign exchange policy of the country. No approval of such policies is done by the Board. It deals with the approval of tenders, expenditure and approval of disciplinary actions against members of the staff of the Bangladesh Bank. Such is the position of the Board of Directors. It does imply that the central bank in Bangladesh does not enjoy autonomy. The Board should have the power of policy guidance including inspection and investigation.
Thus, it appears that though the Bangladesh Bank has ample powers under the Bangladesh Bank Order, 1972, the Bank Companies Act, 1991 and the Financial Institutions Act 1993, it is not found to apply its authority as it is a pawn of the Ministry of Finance. It has the Board of Directors which does not have any role in formulation of monetary, credit and foreign exchange policies of the country. Moreover, the central bank holds inspection and investigation. But it does not have a high-powered or a special investigation committee to investigate serious fraud-forgery cases and irregularities in the banking sector. These lapses require some amendments to the existing laws on the one hand and attainment of capability for dependable and pragmatic analysis and actions by the Bangladesh Bank itself, on the other. The political will of the government and the capability of the Bangladesh Bank are essential to make it an effective central bank.
