First News
Volume:7, Number:39
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Business & Finance 1

Depletion and Repletion

State-owned banks are relaxed about loan recovery as the government continues to inject cash into their capital funding

| Monowar Hossain |

It has been a common feature for the last few years that stateowned commercial banks fail to recover the loans disbursed by them and sink in provision deficit and capital deficit. The government then comes to the rescue by injecting fresh capital from the national exchequer to sustain the operation of these banks. How long this cycle will continue is a question being asked by experts in the banking sector.

Recently, the Ministry of Finance decided to provide an amount exceeding BDT40 billion as part of its initiative to replenish the capital deficits of the banks under its supervision. Before this, the government had injected about BDT80 billion into the capital funding of the banks or to meet their provision deficit. So, it will not be an exaggeration to say that a practice has emerged that stateowned banks run into trouble due to their own inefficiency and folly, and the government provides capital to keep them in operation. "By resorting to this practice the government itself is encouraging the banks to relax or bypass their principal responsibility of loan recovery," commented an experienced banker of the country. The state-owned commercial banks, Sonali, Agrani, Janata, and Rupali, as well as specialized banks, Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank, have played a praiseworthy role in bringing common depositors into the banking network of the country. They did it by expanding their branches to remote areas in the country. They also played a major role in industrialization by extending loans to entrepreneurs to set up new mills and factories and to rejuvenate existing and sick industries.

A large number of them had little or no intention to pay back the loans they obtained from the banks and preferred to be in the loan rescheduling schemes or completely ignored the repayment they were required to. make. With tacit approval of high executives of the banks, and sometimes using their "high con- Depletion and Repletion State-owned banks are relaxed about loan recovery as the government continues to inject cash into their capital funding nections", these so-called entrepreneurs remain defaulters, often in the hope of having their loans written-off or further rescheduled. The banks, indeed, have done nothing noteworthy to realize their loans from defaulter clients and the government has turned a blind eye to what has been the situation in the banking sector for quite time some. It will not be wrong to say that most entrepreneurs in the country grew up on the support of public money extended to them by public sector banks, and later, they, to their convenience, refused to repay the loans with interest on the basis of various "genuine" pleas. Why the government is not pressuring the banks to go all out against the loan defaulters is not clear in most cases.

How much cash the government has given to state-owned commercial banks over the years, to replenish their capital deficits or to meet their provision deficits, cannot be calculated instantly. But sources in the banking sector have guesstimated that it would add up to billions of taka. The recent decision of the Ministry of Finance to pay the banks from the earmarked (in the budget) amount of BDT20 billion to meet their capital deficit evoked a big question. Because the amount required is about BDT150 billion. So, it is presumed that the money is most likely to be diverted from expenditures earmarked for the current Annual Development Program.

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