Bangladesh Bank Approves Digital Bank Guidelines to Transform Banking Landscape

The Bangladesh Bank has recently approved a set of digital bank guidelines, marking a significant milestone in the country’s financial sector. These guidelines pave the way for the establishment of digital banks with a minimum paid-up capital requirement of Tk125 crore, heralding a new era of technologically-driven financial services.

Under the approved guidelines, digital bank licenses will be granted in accordance with the Banking Company Act of 1991, while payment services will operate under the purview of the Bangladesh Payment and Settlement System Regulations of 2014.

Recognizing the potential of digital banking, experts have emphasized the need for cautious implementation. It is crucial to ensure that licenses are not granted solely based on inadequate capital or by entities with questionable intentions. To this end, suggestions have been made to raise the minimum capital requirement for digital banks to Tk1,000 crore, ensuring their stability and safeguarding customers’ deposits.

Experts have also advised against wholesale approvals for digital banks, citing the challenges experienced in other sectors following similar practices. Instead, a more selective approach is recommended, with a limited number of approvals initially granted, potentially around four to five institutions. Currently, it appears that only a few organizations, such as bKash, meet the eligibility criteria for digital banking in Bangladesh.

The guidelines also outline the minimum shareholding requirements for sponsors, mandating Tk50 lakh per sponsor with a maximum cap of 10% or Tk12.5 crore. However, flexibility is provided in special cases or joint ventures involving banks, financial institutions, microfinance institutions, mobile financial service providers, fintech companies, and technology firms, allowing for adjustments to the ownership structure.

Experts have stressed the importance of developing a skilled workforce capable of effectively managing digital banks. It is suggested that the central bank should acquire the necessary regulatory authority to oversee this evolving sector.

According to the guidelines, digital banks will be required to conduct an initial public offering (IPO) within five years of obtaining their licenses. The IPO amount should be equal to or higher than the sponsor’s initial contribution. While digital banks will primarily operate without physical branches, they will still be subject to the same business, governance, and operational requirements as traditional banks.

The introduction of digital banks in Bangladesh aligns with the global trend of transitioning from traditional brick-and-mortar banking to digital platforms. Countries like India and Pakistan have already embraced this transformation by launching digital banks in 2022.

With the current saturation of the banking sector, which currently comprises 61 conventional banks, the advent of digital banking offers new opportunities for financial services and innovation in Bangladesh. The government’s commitment to modernize the banking industry was evident when the finance minister announced the launch of digital banking in the upcoming fiscal year during the budget speech.

Nagad, a prominent player in the mobile financial services sector, has expressed its intention to establish a digital bank. Their initial approach to the Bangladesh Bank in 2020 prompted the formulation of the digital bank guidelines.

As Bangladesh prepares to embrace digital banking, these new institutions are expected to revolutionize the delivery of financial services. By offering convenience, accessibility, and improved financial inclusion, digital banks have the potential to transform the lives of individuals and businesses across the country.

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