The central bank has recently signed memorandum of understandings (MoUs) with the NCBs limiting their lending authority to only five per cent of their paid-up capital.

For this restriction, industrialisation in Bangladesh will be hindered, BoI said in its proposal to the government titled "Investment Friendly Lending Policy".

The lending limit on the NCBs is likely to hurt overall economic growth targets and the banks will not be able to grow with the market forces, the proposal said.

The BoI said under the restriction, Sonali Bank will have the capacity to lend Tk 16.35 crore to a single project, Janata Bank Tk 12.96 crore, Agrani Bank Tk 12.40 crore and Rupali Bank Tk 8 crore.

"So, a four-bank consortium will only be able to lend Tk 49.71 crore for a single project whereas project cost of a composite textile mill is approximately Tk 300 crore and on a 65:35 debt-equity ratio basis, the required amount of debt is Tk 195 crore," the proposal said.

Under the present lending system, an entrepreneur will require at least a 20-bank consortium to finance a composite textile project. The BoI finds arrangements of such loans through consortium to be unrealistic since the entire process will take more than one year for completion as it would be next to impossible to have the proposals approved from the respective boards of 20 banks.

"Instead of limiting lending on project basis, the decision could be made on group basis," the paper proposed, saying some foreign banks do not lend more than 50 per cent of their paid-up capital to a single group.

Bangladesh Bank should not play regulatory role in fixing debt-equity ratio, BoI suggested, saying the decision should be on the basis of viability of projects, banker-client relationship and market mechanism.

"Commercial banks including NCBs may be encouraged to accept reasonable equity which should not be more than 40 per cent," it said.

However, the central bank, in a reply letter to BoI, said no notice was issued on debt-equity ratio from Bangladesh Bank to the NCBs.

Entrepreneurs should be encouraged to go for fund raising through equity as bridge finance to boost private investment significantly, the BoI proposal paper said.

In this connection the paper mentioned that during late 1970s, Investment Corporation of Bangladesh (ICB) used to provide 50 per cent of the total equity as bridge finance which is then repaid with interest by the investor after raising IPO (initial public offering). "But, ICB stopped this since fiscal year 1994-95."

The system should be reintroduced to help capital formation and also to energise stock market, the BoI paper recommended.