The finance ministry has turned down a central bank proposal on rise of paid-up capital of the commercial banks saying implementation of such measure may create problem in the banking sector, said a senior ministry official.
The proposal on doubling the paid-up capital for the commercial banks from existing Tk 2.0 billion was sent by the Bangladesh Bank (BB) to the finance ministry early last month.
The central bank said it is imperative to fix a new paid-up capital threshold for the commercial banks to protect the interests of depositors and maintain the international standards of minimum bank capital requirement.
The move of the central bank came as part of the implementation of international BASEL-II framework, which requires the banks to raise their capital to stave off any financial meltdown.
The fulfillment of the new threshold requirement should have been completed by 2010.
But the finance ministry said raising bank capital threshold to Tk 4.0 billion from Tk 2.0 billion in a span of two years may put the commercial banks operating in the country in a difficult situation, said the official.
"Such capital requirement might create problem in the financial market," he said while quoting the note sent by the finance ministry.
The paid-up capital threshold was last doubled to Tk 2.0 billion in August 2007 from Tk 1.0 billion. The deadline for such capital requirement will end on June 30, 2008.
A private bank executive said foreign banks operating in the country will be benefited mostly due to the finance ministry decision of shelving the central bank proposal.
"They (the foreign banks) will enjoy privileges in export and import business for having better acceptability. Local banks have to rely on them for the purposes," he said.
The central bank in its proposal said local banks handling international trade, mainly import, with less than the required capital base could face a ban from foreign exporters for not meeting the new criteria.
It suggested that banks having less than the proposed capital base could meet the criteria either by merging with other banks or through collecting funds from the capital market.
Many banks had to go to the capital market for raising required funds when the central bank raised the minimum capital requirement to Tk 1.0 billion in 2003 from Tk 400 million.
Available statistics until 2007 said 14 out of the 38 local banks have their paid-up capital ranging between Tk 1.0 billion and Tk 2.0 billion each.
Eleven banks have more than Tk 2.0 billion each, 16 have a capital base between Tk 2.0 billion and Tk 3.0 billion and the remaining seven banks have more than Tk 3.0 billion each.
