Draft finance company act allows BB to dissolve leasing company boards

Dhaka, June 24 (New Age): Bangladesh Bank will be empowered with the authority to dissolve the boards of non-bank financial institutions in a proposed Finance Company Act that has put stringent restriction on lending by the financial entities, commonly known as leasing companies. BB has drafted the Finance Company Act-2014 to place the existing Financial Institution Act-1993 to regulate the country’s leasing companies more strictly. The proposed act, now being scrutinised by finance ministry, said BB could dissolve the boards of finance companies, its chairman, directors and chief executive officer if the central bank finds any gross irregularities harmful to its depositors. The current provision lying in the FIA stipulates that BB only could fire chairman, director or CEO of any leasing company for valid ground, but not the board of such company. Both the acts, existing and the proposed ones, however, have provisions for seeking clarifications from the persons in questions, before BB applies its ultimate powers. Presently, the country has 30 leasing companies. The proposed act has put restriction on holding more than 10 per cent share of a finance company by any individuals or any company or members of a family. Restricting investment, the act said no finance company is authorised to invest more than 25 per cent of its paid-up capital in a single subsidiary organisation that belongs to the finance company concerned. The current provision under the FIA allows 50 per cent investment by a leasing company of its total paid-up capital. The number of board of directors of such finance companies will be as high as 16, according to the new act. The maximum number of directors to be appointed from a family having shares above five per cent on the finance company could be only two, while one director can be appointed from a family having less than five per cent stake in a finance company, the proposed act said. Presently, no capping on board members applies to a leasing company as the companies concerned generally decide on the numbers of their board members. The tenure of office of a director has been proposed for three years with limiting their terms for maximum two consecutive times. Any finance company director will be disqualified to become director of a bank company or other finance company simultaneously. The current provision disqualifies a leasing company director from becoming a director of an insurance company along with directors for bank and other leasing company at a time. An executive director of BB said they had finalised the draft act in consultation with different stakeholders including that of association of leasing companies. He said the current FIA has lost relevance on many counts as that was enacted more than two decades ago. The finance officials said they would submit the draft act to cabinet division next month with minor changes for approval.