Sans banking licence, DMCBL collects Tk 981cr, disburses loan

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Bangladesh Bank is worried about the continued banking operation by The Dhaka Mercantile Co-operative Bank Ltd (DMCBL) which does not have central bank’s licence, as it has already collected Tk 981.05 crore from depositors and disbursed Tk 1,079.55 crore in loans.
A recent investigation by the central bank found that the DMCBL ‘under the guise of’ cooperative was conducting ‘unabated and unregulated’ banking activities.
It warned that if the banking activities of the DMCBL were not stopped, a large number of depositors would face the risk of losing their money.
BB deputy governor SK Sur Chowdhury told New Age on Sunday that there had been talks among different regulators about taking punitive measures against the DMCBL.
‘The BB has already issued letters to different government agencies to take action against the DMCBL due to its illegal banking. If needed, the BB will take legal action against the institution,’ Sur said.
Although the Department of Cooperatives tried in last few years to stop ‘illegal banking’ by the DMCBL and expansion of its branches across the country, the company filed four writ petitions against the department’s action and the matter remains pending at the High Court.
The Prime Minister’s Office, however, issued a letter to Bangladesh Bank on March 16, 2016 asking it (BB) to take measure against the ‘illegal banking’ conducted by the DMCBL.
Against the backdrop, the central bank in April in a notice warned public about engaging in banking activities with the DMCBL and conducted a detailed inspection at different branches of the institution in May 2016.
The DMCBL has been operating banking business across the country by opening 116 branches without following regulations issued by financial regulators, the BB report said.
The DMCBL collected the deposits from more than 2.13 lakh clients with paying very high rate of interest than that of the scheduled banks.
According to the DMCBL documents, it attracts the clients with the offer that any amount of fixed deposit receipt will be doubled by six years. It is also offering 13 per cent interest rate on five-year tenure FDR and 12.50 per cent interest rate on four-year tenure FDR, the BB report said.
The report said that the institution paid interest rate higher than the declared rates in various cases.
The institution collected the maximum amount of deposits from the clients who are not members of the DMCBL violating the Co-operative Societies (Amendment) Act, 2013.
The volume of the deposit with the DMCBL increased by 158.79 per cent in last
five and a half years from Tk 379.08 crore as of June 30, 2011 to Tk 981.05 crore as of December 31, 2015, while its loan disbursement increased by 173.88 per cent from Tk 394.16 crore to Tk 1,079.55 crore.
According to the DMCBL financial statement based on June 30, 2015, the share capital of the institution stood at Tk 3.37 crore. But the share capital of the institution should have increased at least to Tk 20 crore if it (DMCBL) had distributed share worth Tk 100 to 2.13 lakh depositors.
The DMCBL took the deposit from the clients by conducting illegal banking under the name of co-operative society, the BB report said.
The DMCBL took the registration on 1973 from the Office of the Registrar of Co-operative Societies to operate as cooperative society under the Bengal Co-operative Societies Act, 1940.
The amended act (2013) imposed an embargo on the cooperative societies on using the word ‘bank’ with their names but the DMCBL continued to use the word to attract clients.
The DMCBL is providing cheque and pass books, deposit books and account opening forms to the clients like the commercial banks.
The DMCBL filed a writ petition with the High Court in 2013 to use the word ‘Bank’ with its name, challenging the amended act. After the writ petition, the High Court issued a rule nisi to the government. The issue is now under trial at the High Court, the BB report said.
The BB feared that the depositors of DMCBL would plunge into a risky condition if any measure is not taken against the institution in the shortest possible time.
The DMCBL is also disbursing huge amount of loans to its clients violating the act. The institution disbursed loans worth Tk 2 crore in favour of a client named Md Razzak by settling registered mortgage against his 5.71 decimals of land at Tongi in Gazipur.
Only banks and non-bank financial institutions are allowed to disburse loan to their clients under the process in line with the act.
The DMCBL also violated reserve fund-related directives of Co-operative Regulations, 2004 as it disbursed loans higher than the amount of deposits it collected to earn quick profit.
The institution took loans worth Tk 50.83 crore from different banks as of June 30, 2015 and the fund was disbursed to its (DMCBL) clients, the BB report said.
Against the backdrop, the institution will fail to provide depositors fund if significant number of clients seek their fund at a time.
Abu Zafar Chowdhury is the chairman of the DMCBL and his wife Shamsun Nahar is the managing director.
The BB report said that the husband and the wife were the main authorised persons in the DMCBL to take decision about any policy-related issue of the institution. So there is no corporate governance in the DMCBL, it said.
The BB report said that the DMCBL continued to open new branches across the country violating the act to collect deposits although it was allowed to conduct co-operative society operation only in the Dhaka district.
When communicated with the DMCBL head office on Indira Road in the capital, Md Monirul Islam, senior assistant vice-president of the institution, told New Age that the depositors would withdraw their fund if the ‘Bank’ word from the name of the institution was removed.
Monirul said that DMCBL chairman Abu Zafar Chowdhury did not talk to media and he (Monirul) was authorised to make comment about the institution to reporters.
He said that the DMCBL was now conducting its business by filing four writ petitions with the High Court.
He said, ‘The BB is no authority to raise any question against the DMCBL as it (BB) is not our regulator.’

Source: New age

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