IN THE modern world, due to the increase in internal, regional and international economic activities in different countries, the significance, role and contributions of commercial banks have become inevitable. Ordinarily, by the expression ‘bank’, we mean collection of deposits from subscribers and reinvestment of the same in different profitable concerns.
At present, in our country, the number of commercial banks —both public and private, both local and foreign — is 47. Among those the number of private banks is highest. Four are nationalised commercial banks, four are specialised banks, 30 are private banks and nine are foreign banks. Beyond that, the number of non-banking financial institutions is 30 which, in the view of many, are in excess of what is necessary. At present the number of scheduled banks in our country, proportionate to population, is more than that of India and Pakistan. For smooth running of the functions of public and private banks, each bank has a board of directors. Chairman and directors of public banks are appointed by the government. On the other hand, chairman and directors of the private banks are appointed by sponsor directors and in some cases by the shareholders. Amongst the directors of private banks the person who commands the majority support usually performs the duty of the chairman.
Due to improper functioning of the business, accusations are often raised against some chairmen and directors of the board, by members of the public, for taking too many facilities to the detriment of the investors. Big loans from public and private banks need assent of the chairman and directors, and in most of the cases it is seen that by the influence of the board of directors the granted loan becomes a bad loan, as the terms and conditions are not realised. Today, the fact that some members of the board of directors take advantage, in matters of sanctioning of new loans, remission of defaulted loan and rescheduling of the loan, is not unknown to anyone. There are thrilling instances of converting a rescheduled loan to interest free 10-15 years term loan, and, in some cases, loans taken with pseudonyms or in the name of relatives, by the chairmen and directors of private banks. In this way, if members of the board of directors cause delay in paying back loans and refrain from paying interest, then there will definitely be a liquidity crisis in the bank.
There is more than one instance of the managing directors of commercial banks leaving office prior to expiry of the term, to preserve self-respect, for not being able to discharge their duty independently because of interference by some chairmen and directors, in the matter of daily routine work, appointment and transfer of employees, sanctioning of loans and rescheduling of loans. It is also seen sometimes that the chairman is discharging the job of managing director. In this matter, in spite of issuance of cautionary note from the Bangladesh Bank, the trend is on the increase.
A number of members of the board of directors have taken advances in crores of taka, by renting their own building to the bank. There is a sensational story of the purchase of land for a bank branch at few times more than market price, for misappropriation of the additional money. Exercise of undue influence by a number of members of the board of directors, in the matter of decoration and purchase of furniture for new branch, has become a type of tradition. Many self-relieved officers are being subjected to unnecessary trouble for unlawful transfer of provident fund and gratuity money of the employees to somewhere else. In the last financial year although accusations of serious irregularity in preparation of annual report was raised against eight banks, no stringent measure was found to be taken on the part of the central bank.
At present, for making the banking business dynamic, competitive and people-oriented different countries are mainly stressing on capital arrangement and loan risk management, instead of increasing number of banks. As a result, the number of banks is brought to a minimum by way of merger and acquisition, focusing more on interest of the investors and shareholders. But in this matter it is to be said that we are walking backward against reality. The government recently issued, purely on political consideration, letters of intent towards the approval of six new commercial banks and three non-resident banks. All these banks in the coming six months shall have to make arrangements for deposits -- Tk 2,400 crore in local currency for the six local commercial banks, and Tk 1,200 crore in foreign currency for the three non-resident banks. It is almost certain that the three non-resident banks would not face any difficulty in depositing said amount of money, but as to whether they would be asked about their source of money is not yet clear. It is to be mentioned here that, previously, the money of a foreign buyer to purchase of Rupali Bank was considered to be money smuggled from this country. At present, the said money, amounting to about taka 1,000 crore, has been kept in an account of Bangladesh Bank as remitted by an unknown person. Where is the guarantee that the money generated from the share-market scam, commission of power plant, commission of tender and appointment would not come as reserve fund of non-resident banks? Many are suspicious as to whether the sponsor directors of the six local banks would be able to arrange Tk 2,400 crore of reserve fund unless provision is made for whitening black money, and many are of the view that unless this opportunity is given not even a single bank would see the light of day. Many sponsor directors are very much active in getting the opportunity of whitening black money again. Thus, conscious people of the country feel that if the permission for whitening black money is to be given for the sake of the economy, then that should be given after the deposit of reserve fund by the newly approved banks. It is a matter of deep regret that the chairman of the National Board of Revenue, prior to declaration of budget, has made the announcement that provisions would be made for whitening black money. No one doubts the motive behind this type of announcement, prior to the declaration of budget.
In the matter of approval of new banks the decision of the Bangladesh Bank is final and although the role of the board of directors of the Bangladesh Bank was negative before, for whatever reason, the board of directors played a positive role particularly for the approval of these six local banks. The conscious people of the country have inquisitive questions on that matter. The board of directors of the Bangladesh Bank, previously imposed conditions that opening of a new branch in urban areas is subject to opening of a new branch in rural area, and the economists of the country say that creation of branches of existing banks is more effective than approving of new banks for employment creation. How does the board of directors of Bangladesh Bank take a stand against its own position and the opinion of economists?
The manpower and efficiency which the Bangladesh Bank presently has is not adequate for proper superintendence and control of existing banks. In that reality it is easily understandable to what extent the Bangladesh Bank would be ineffective in exercising supervisory control over the newly approved commercial banks, without any addition to existing manpower and efficiency. Apart from that, with the entry of those influential in the matter, as is conceivable in the board of directors of the new banks, it is better not to be hopeful that the supervisory role of the Bangladesh Bank would be very effective.
The number of sponsor directors in each of the newly approved banks has been fixed at maximum 20. A sponsor director is required to arrange white money of Tk 20 crore, for the formation of reserve capital of Tk 400 crore. But someone whose income tax return asset is not over Tk 1 crore how do they supply Tk 20 crore -- this question has come up in the mind of the people. A designated chairman of a newly approved commercial bank was supposed to be prosecuted under the Money Laundering Act, for misappropriating Tk 50 crore by not reimbursing export bill. In spite of the knowledge of the Bangladesh Bank, the bank has got approval showing him as chairman -- today that has also appeared to be a big question. What would be the future of the bank in the hands of such people and to what extent the interest of investors is secure, has made many anxious. The incident of scuffles between would-be sponsor directors of a newly approved bank, at its office in a posh area, signifies a chaotic situation in future. Apart from that, many brokers, in the name of a number of sponsor directors of these newly approved banks, have made traps of earning illegal money by giving hopes of a coveted job in the bank. Meanwhile, many job seekers falling in this trap have made payments of either full or half of the demanded money. When this type of person is given permission for setting up of banks, purely on political consideration, the patriotic people of the country have nothing else to do but take a long breath in astonishment.
During the past 10 years some commercial banks, in the absence of good governance, corruption, irregularity and defaulted loans, have been pushed to the verge of bankruptcy. At that time, two past governors of the Bangladesh Bank succeeded in bringing discipline in the banking sector, curtailing irregularities by the CBA and influential people. Where is that discipline today? It is to be noted that, at that time, the incident of one Om Prokash Agarwal had given rise to the removal of five managing directors of commercial banks. Apart from that, 30 directors were removed for irregularity, corruption and taking of loans overlooking the procedure. At present, although there are publications in the newspaper about corruption and irregularity of different commercial banks, no effective step on the part of the Bangladesh Bank is visible.
A trend is visible of appointing honest and efficient retired officers of Bangladesh Bank in commercial banks, with lucrative pay and allowances. But in the field of action, without utilising their efficiency, they are sent to the Bangladesh Bank to the redress the irregularity of the banks. The retired officers are embarrassed and frustrated by getting this type of instruction while working in the commercial banks.
In the post-independent Bangladesh opportunity for whitening black money was given 16 times. During these times Tk 13,000 crore has been made white, and from this the government earned revenue of about Tk 1,370 crore. According to observation of Australian economist Fradrick Snider, a black money expert, in Bangladesh the percentage of black money is 37 per cent of the GDP. On this account, the amount of black money stands at Tk 150,000 crore. But by scrutiny of the finance ministry the percentage of black money in Bangladesh is between 41 and 81 percent. Accordingly, the amount of black money stands between Tk 190,000 crore and Tk 760,000 crore.
Under the provisions of Income Tax Act, 1922 and Income Tax Ordinance, 1984  the opportunity for whitening black money was given with respect to investment in new industry, expansion and modernisation of existing industry, stock market, house property, land property, motor vehicle for personal use and repayment of loan either by giving tax at fixed rate or without any tax. Besides, the revenue board gave opportunity for whitening black money, through statutory regulatory order, twice or thrice, by taking a 10 percent tax. In the statement of a senior minister and a secretary it has been hinted that the budget this year will have the opportunity for whitening black money, although this hint has become distinct in the statement of the NBR chairman. The economists of the country agree that this opportunity is being given in order to facilitate sponsor directors of newly approved banks to deposit Tk 400 crore as a component of reserve fund.
When an influential minister of a country says that there is black money in remittance also, and when the secretary subordinate to him says there is no link between corruption and black money, then what else could be said to expatriate workers earning hard-earned foreign exchange and honest tax payers. As long as people of the country hear this type of farcical statements from the highest level of the country we would not have discipline in any sector, including the banking sector.
Ikteder Ahmed is a former judge and former registrar, Supreme Court. iktederahmed@yahoo.com.