The High Court has questioned a Bangladesh Bank (BB) circular that asked the Non Bank Financial Institutions (NBFIs) to adjust their capital market investment without providing any reasonable period of time.
The court has issued a rule upon the concerned bodies of the government to explain in four weeks as to why the circular that asked the NBFIs to adjust their capital market investment without providing any reasonable period of time should not be declared illegal.
And as to why the respondents should not be directed to provide with a period of three years to the NBFIs to adjust their capital market investment as provided earlier to the scheduled bank of the country, also ruled the court.
The Finance Ministry, Bangladesh Bank Governor, and General Manager of the Department of Financial Institutions and Markets (DFIM) of the Bangladesh Bank have been asked to comply with the rule.
The High Court bench of Justice Zafar Ahmed and Justice Kazi Zinat Hoque have passed the order after hearing a writ petition filed challenging the legality of the BB circular.
Tauhidul Isalm, a businessman in the capital market and is also a shareholder investor of several securities including IPDC Finance Limited, filed the petition on Monday.
Lawyer Mohammad Ullah appeared in the hearing on behalf of the writ petitioner.
The lawyer said the central bank in 2013 provided a period of three years to the schedule banks to adjust their capital market investment, however, under the circular in question, the BB most arbitrarily didn’t provide any time whatsoever to the non bank financial institutions of the country.
The lawyer also said in order to comply with the circular, the non bank financial institutions would have no other option but to call back their loans remaining with their own subsidiaries and other companies involved in the capital market transactions which would forcedly require the companies to sale their shares and calling back the margin loans from the customers.
The Bangladesh Bank on February 15 issued the circular that also fixed the instruments which will be considered as stock market investment for non-bank financial institutions. The central bank has for the first time fixed the instruments for the NBFIs.
The highest limits of investment for the NBFIs were earlier set following the Financial Institutions Act 1993, but it was not specified which instruments would be considered as a stock market investment.
All listed shares, debenture, corporate bonds, mutual funds, and other products at market prices shall be considered as share market investment for the NBFIs, the central bank said in the circular.
The loans to their subsidiary companies that are doing direct or indirect business with the stock market will also be considered as stock market investment. The amount of loans the NBFIs have lent to other companies who are dealing with the stock market will also be included in the exposure, according to the BB.
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