Bangladesh Bank approves Digital Bank guideline

The board of the Bangladesh Bank has approved the Digital Bank guideline keeping provision for paid-up capital at Tk125 crore.

Md Abul Bashar, executive director and spokesperson of the Bangladesh Bank, confirmed the approval to reporters on Wednesday.

The licence of the Digital Bank will be given under the Banking Company Act 1991. The payment service will be operated under the Bangladesh Payment and Settlement System Regulations, 2014, according to the approved guideline.

Dr Ahsan H Mansur, economist and the executive director of the Policy Research Institute (PRI) of Bangladesh, told The Business Standard that the central bank should be very careful in approving digital banks. The licence should not be given if a few directors come up with the capital and seek approval for opening a digital bank. They might disappear with customers' deposits after getting the approval."

"A big error in the guidelines of digital banks is the provision for approval with only Tk125 crore capital. The central bank should have given a capital obligation of at least Tk1,000 crore," he said.

"The central bank should not give wholesale approvals to digital banks like scheduled banks. For example, it did not pan out well after giving wholesale approvals to insurance companies and non-bank financial institutions," Mansur said.

The minimum shareholding of each sponsor will be Tk50 lakh (maximum 10% or Tk12.5 crore), according to the digital bank guideline.

"The ceiling of 10%, in consultation with the government, may be relaxed in case of a digital bank formed as a joint venture of banks, financial institutes, microfinance institutions, MFS providers, fintech companies and technology firms or for a needed special case," reads the guideline.

"Now a large number of applications for opening digital banks will be submitted. I think four to five approvals should be given. But at the moment, no other organisation, except bKash, seems to be eligible for digital banking," Ahsan H Mansur said.

"Before allowing digital banks, skilled manpower needs to be developed. I do not know if the central bank has the power to regulate, but it needs to acquire that power," the economist added.

A digital bank must go for an initial public offering (IPO) within five years from the date of the licence issuance by the central bank and the IPO amount should be minimum to the sponsor's initial contribution.

Digital banking is part of the broader context for the move to online banking, where banking services are delivered via the Internet.

The major difference is digital banks will have only headquarters, and no other physical presence while conventional banks have physical presence across the country.

The business, governance and operational requirements applicable to traditional banks in general, shall continue to apply to digital banks, according to the guideline.

The central bank is going to introduce digital banks in Bangladesh at a time when new-generation banks across the globe are turning away from traditional brick-and-mortar banks in favour of digital banking.

Among the South Asian countries, India and Pakistan introduced digital banks in 2022.

At present, the banking sector is oversaturated with 61 conventional banks in Bangladesh.

The finance minister in his budget speech for the next fiscal year announced the launch of digital banking in the new year.

"The committee's work on formulating the outline for setting up digital banks is now completed. In FY2023-24, we hope to be able to launch a digital bank," according to the speech.

At present, Nagad, the country's second-largest MFS provider, is planning to set up a digital bank. 

Nagad first approached the Bangladesh Bank for a digital bank licence in 2020 and following that the regulator moved to formulate guidelines in this regard.