Bangladesh Bank yesterday fined NRB Bank Tk 49.50 lakh for breaching securities rules by buying the shares of Pioneer Insurance beyond the investment ceiling.

Just two weeks ago, the central bank imposed a fine on NRB Commercial Bank for its aggressive investments in the capital market in breach of laws.

This signals the BB’s firm position in preventing banks’ overexposure in the stock market as it looks to protect depositors and maintain stability in the financial sector.

Once the benchmark index of the Dhaka Stock Exchange crossed 6,500 points, the central bank started to consider the index as overvalued. The DSEX gained 31 points, or 0.44 per cent, to 7,228 yesterday.

So, the BB has been investigating banks’ participation in the market and has mopped up excess liquidity from the banking system.

It is probing banks’ investments on a daily basis to prevent them from overexposure.

The move has led the BB to unearth the breach of rules.

The BB sent a letter to the managing director of NRB Bank yesterday notifying him about the penalty.

It asked him to pay the fine within the next three working days. Missing the deadline would result in the amount being debited from the bank’s current account maintained with the central bank.

Earlier in August, the BB asked the private commercial bank to explain the investment overexposure.

The bank’s reply about its investment in Pioneer Insurance was not acceptable as per the Bank Company Act 1991. Due to the breach of the Act, a fine of Tk 49.50 lakh was imposed, the central bank said in a letter yesterday.

A bank can invest a maximum of 25 per cent of its total capital in the stock market. It cannot invest more than 5 per cent of the total capital, share premium, and retained earnings in the case of a single company.

A bank is allowed to put in a maximum of 10 per cent of its paid-up capital in the stock of a single company.

NRB Bank violated the rules through its investment in Pioneer Insurance, said the BB.

After examining documents of the bank, it found NRB Bank’s involvement in the circular and speculative trading, said a central banker, seeking anonymity.

Circular trading is a fraudulent scheme where sell orders are entered by a broker who knows that offsetting buy orders for the exact same number of shares at the same time and at the same price have either been or will be entered.

“We have taken the step so that banks cannot engage in speculative trading,” said the central banker.

According to BB officials, a good number of banks have flouted rules by investing a large amount of funds in the capital market.

Mamoon Mahmood Shah, managing director of NRB Bank, could not be reached for comments. A number of senior officials of the lender declined to comment.

On September 5, the BB fined NRB Commercial Bank Tk 23.50 lakh for its aggressive investments in the capital market in breach of rules.

The bank’s stock market exposure stood at 27.33 per cent of its capital in July against the ceiling of 25 per cent.

In July, much before the key index of the DSE climbed to its historic high, the BB directed lenders to beef up monitoring on how loans from the stimulus packages were being used as it found some cheap funds were channelled into the unproductive sectors like the stock market.