Prospective sponsors are barred from acquiring an ownership stake in a digital bank using borrowed funds, according to the Bangladesh Bank's guidelines, reports bdnews24.com.
Loan defaulters are also prohibited from becoming an owner or a shareholder of such an institution, even if they secure a reprieve on their debts from the High Court.
Digital banks will not be allowed to provide any over-the-counter services, nor will they have ATM machines. As a result, customers will have to rely on other banks or mobile financial services to deposit or withdraw funds while making transactions using cards or QR codes.
While these banks can provide loans to customers at all levels within the country, the scope of foreign transactions is limited.
Digital banks must also follow all existing banking laws and enlist in the capital market within five years of inception.
These are part of the policy guidelines approved by Bangladesh Bank for digital banks.
The guidelines also stipulate a minimum capital requirement of Tk 1.25 billion to open a digital bank, compared to Tk 5.0 billion for conventional banks.
A digital bank must also obtain a licence from Bangladesh Bank and follow the provisions of the Bangladesh Payment and Settlement System Regulation to provide payment services.
At present, 61 banks are carrying out conventional banking activities in the country, along with several other companies that are providing mobile financial services.
Digital banks will be regulated by the provisions of the Bank Companies Act, and accordingly, the board of such institutions cannot have more than three directors from one family.
A person must also hold at least Tk 5.0 million worth of shares in the bank to become a sponsor.
The founders and shareholders of digital banks must pay for their stakes in cash. This means that in order to get a banking licence, the applicants must make cash deposits in their bank account and their income tax returns should clearly specify the source of those funds.
The account can be maintained in any commercial bank and will be monitored by Bangladesh Bank. Once the digital bank is approved, the bank account will be tied to the central bank.
The money invested in digital banks by sponsors or shareholders cannot be borrowed from any bank, financial institution, family member or any other source.
No company, institution, individual or any member of a family who has defaulted on a loan can become a digital bank owner.
According to the guidelines, a digital bank will have its head office in Bangladesh. This office will be used by the bank's management and support staff, where customer complaints will be logged and settled either in person or digitally.
But a digital bank will not be able to conduct customer transactions directly over the counter like conventional banks. It will also not have any branch, sub-branch, agent or window.
Customer accounts will be opened online in line with know your customer (KYC) regulations. After opening an account, a customer can transfer and spend money online, via the networks of any other bank or MAFS agent, ATM booth, CDM and CRM systems.
Digital banks can also introduce virtual cards, QR codes or any other advanced technology-based products to facilitate transactions.
Digital banks will be given the opportunity to obtain an authorised dealer licence to conduct general transactions in foreign currencies, which must be recorded, without offering foreign trade and guarantee services.
This means digital banks cannot participate in foreign trade, although they can receive remittances from abroad and manage foreign currency accounts.
Accordingly, these institutions can act as payment banks, through which transactions related to overseas education, treatment, travel or any other purpose can be done by a customer.
However, these banks cannot finance foreign trade or provide term loans to large and medium industries.
Other than that, digital banks can provide collateral loans to customers, with the guidelines prioritising lending to marginal and SME sectors.
The artificial intelligence-based alternative loan scoring guidelines set out by Bangladesh Bank should be followed when disbursing loans.
At least half the members of a digital bank's board are required to have adequate education, knowledge and experience in technology-based banking, emerging technology, cyber laws and regulations. The rest must have adequate knowledge and experience in banking, e-commerce and banking laws and regulations.
Digital banks are required to implement a strong ICT infrastructure and application systems, according to the guidelines. They must have 'tier three' quality data centres and disaster recovery sites in different seismic zones.
