Rules relaxed to save Farmers Bank

Bangladesh Bank has relaxed three articles of the Bank Company Act 1991 to facilitate the purchase of shares worth Tk 715 crore by four state lenders and one financial institution in Farmers Bank and steady the beleaguered bank.

Four banks -- Sonali, Janata, Agrani, Rupali -- will now inject Tk 165 crore each and the Investment Corporation of Bangladesh Tk 55 crore as fresh equity into Farmers Bank.

The share purchase means the five institutions can each hold more than 10 percent shares of a bank, which is not permitted under article 14 of the act.

Under the article number 14 of the act, no company is allowed to hold more than 10 percent shares of a bank.

But the central bank on Monday relaxed the article for the five companies as they will have to purchase shares exceeding the limit, as per a notice.

Article 26 of the act states that a company can hold shares worth a maximum 5 percent of the bank's paid-up capital, share premium, retained earnings and statutory reserve combined.

The article will be breached when the five companies will inject the equity into Farmers Bank. So, the central bank relaxed the provision.

The central bank also relaxed article 23, paving the way for the managing directors of the four state banks to hold directorship of Farmers Bank.

According to the article, one bank's director is not allowed to hold the same post in another at the same time.

The BB has changed the articles in line with the article 121 of the act, which states that the central bank can relax them after taking suggestions from the government.

Farmers Bank, approved on political consideration, has been facing an acute liquidity crisis since November last year as it disbursed more than half of its total outstanding loans of Tk 5,130 crore through malpractices, BB investigations found.

The central bank has held the bank's former chairman Muhiuddin Khan Alamgir, an Awami League lawmaker, and ex-chairman of its executive committee Mahabubul Haque Chisty responsible for a series of scams. 

The two resigned from the bank board in November last year after the BB asked them to quit over their alleged involvement in the malpractices.

The bank has repeatedly failed to repay depositors' money on time.