BB nod must for NBFIs to lend to subsidiaries

Non-bank financial institutions (NBFIs) will have to take permission from the central bank to lend to their subsidiaries or associates and waive loans or interests.   

The move is aimed at protecting the interests of the depositors and restoring discipline in the financial sector, said the Bangladesh Bank in a notice yesterday.

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The central bank came up with the directive after it found that NBFIs are investing in their subsidiaries or associated companies breaching the regulatory limit.

Besides, rules are being violated in the case of the waiver of interests or loan write-off.

"As a result, the discipline in the financial sector is being hampered and there has been concern that NBFIs might not get back their loans or investments," the BB said.

Under the circumstances, NBFIs will have to secure prior permission from the central bank to lend to their subsidiaries or associates and waive loans or interests.

It came after the BB earlier found that at least seven NBFIs were finding it difficult to recover Tk 2,050 crore they had lent to their subsidiaries and associates in breach of rules.

As per the Financial Institutions Act 1993, NBFIs are permitted to disburse a maximum of 30 per cent of their capital to an individual or company, which also could be their subsidiaries and associates. But the seven lent the amounts violating the single borrower exposure limit.

Now, 35 NBFIs are operating in Bangladesh. Of them, two are fully government-owned, one is the subsidiary of a state-run commercial bank, 19 have been initiated by private domestic initiatives, and 13 were set up by joint venture initiatives.

Major sources of funds for them are term deposit (at least three months tenure), credit facility from banks and other NBFIs, call money as well as bond and securitisation.