Bangladesh Bank has drafted sweeping amendments to the banking law that will place state-owned lenders under its full oversight for the first time and reshape the governance of private banks, in one of the most ambitious overhauls in decades.

The 45 changes to the Bank Company Act, approved by the central bank's board and forwarded to the finance ministry last month, aim to bring the sector closer to global standards after years of mounting distress, governance failures, and politically connected lending.

A finance ministry official told The Daily Star that the draft will be circulated for stakeholder consultations, including input from the Bangladesh Association of Banks, before the draft proceeds to the cabinet for approval.

The centrepiece of the reform package is the abolition of a category that designates state-owned lenders as "specialised banks", a status that currently exempts them from key requirements. If approved, the amendments will align state banks with private banks on capital adequacy rules, governance standards and regulatory supervision. At present, the government can exempt state banks from capital requirements in consultation with the central bank. The proposal removes this discretion, ensuring uniform capital rules across all banks.

The draft also eliminates the exemption that allows state banks to appoint or remove directors and chief executives without Bangladesh Bank's approval. All banks -- state-owned and private -- will be required to seek central bank consent for top management appointments and removals.

Governance reforms extend deep into the private banking sector. The minimum required experience for directors and chief executives will rise from 10 to 15 years, and a new clause will bar sitting cabinet members, members of parliament and local government representatives from serving as bank directors, a measure intended to restrict political influence over lending decisions.

Family control of bank boards, criticised for enabling concentrated ownership and related-party lending, will also be curtailed. The existing limit of three family directors will be replaced with a cap of two. The definition of "family" will be expanded to include in-laws, such as son-in-law, daughter-in-law, brother-in-law and sister-in-law. That will close a loophole that has enabled appointments through marital ties. Under the draft, the continuous tenure for directors has been reduced to six years from 12, after which they will be required to observe a three-year "cooling-off" period before reappointment.

Board size will shrink from 20 directors to 15, with independent directors making up at least half of the board, a significant increase from the current requirement of three independents. These independent directors will be appointed from a vetted pool of candidates shortlisted by an expert panel, a feature Bangladesh Bank says is intended to inject greater professional expertise into boards.

"Smaller boards are more effective," said Md Nazrul Huda, a former deputy governor of Bangladesh Bank, suggesting an optimal size of 11 directors. The quality of directors, including experienced bankers and chartered accountants, matters much more than the overall number, he added.

The draft also proposes removing the "wilful defaulter" classification, introduced in 2023, which obliges banks to list borrowers deemed deliberately unwilling to repay loans. Bangladesh Bank officials argue the category has created additional workload and allowed room for corruption due to subjective interpretation; instead, banks will maintain a single defaulter list after the amendment.

"There are no specific criteria to define the wilful defaulters. And that creates scope for corruption," Huda said.

Another amendment will allow the central bank to relax the current 10 percent limit on individual shareholdings for "strategic institutional investors", if deemed beneficial for the sector. That will potentially pave the way for deeper investment by foreign or domestic institutions.

Lending rules for business groups will be tightened. Under the current law, sister firms of a defaulting company may still borrow from banks. The draft amendments will end this practice, meaning a default by one unit of a conglomerate will bar other units from obtaining loans.