Time to contain defaulted industrial loans

DEFAULTED loans in the industrial sector continue to rise. The defaulted industrial loans stood, as New Age reported on Wednesday, at Tk 25,067.66 crore in the 2015–16 financial year, 32.62 per cent up from Tk 18,901.27 crore in 2014–15. The central bank allowed the banks to write off their non-performing loans on more than one occasions in recent times apparently to show lower amount of classified loans in the balance sheets. Moreover, it approved blanket proposals sent by banks and non-banking financial institutions for rescheduling defaulted loans largely on tenuous grounds that the businesses suffered huge losses because of the political instability in the period. If all this is taken into consideration, the actual amount of the defaulted industrial loans will be much more than what is mentioned. In fact, it was the lack of proper credit discipline in banks and non-banking financial institutions that essentially fuelled the defaulted loans in the sector. In the first place, several banks, especially those run by the government, were hit by one financial scam after another in the past few years, through which several thousand crores of takas were siphoned off from the banks.
One can recall here the much-talked-about Hallmark-Sonali Bank scam that involved more than Tk 3,500 crore, the Bismillah Group scam that involved more Tk 1,500 crore and the one in which BASIC Bank lost about Tk 4,500 crore to swindlers. It is needless to say that almost all the amount lost in the scams is yet to be recovered. Issuance of loans by banks, both public and private, mostly based on anything but merit in the period, which allowed the debtors to divert the loans taken for one purpose to other purposes, also contributed to the increase in defaulted loans. To add to the problem, many businesspeople reportedly convinced the banks that their previous loans would be defaulted if fresh loans were not given to them. Meanwhile, none can deny that while rampant corruption and irregularities prevalent for long in the banking sector played a significant role in the credit indiscipline, an increased politicisation of the management of the state-run banks along the partisan line by the incumbents and the issuance of licences to a number of new banks and non-bank financial institutions ever since the Awami League government assumed office hugely added to the woes. Unfortunately still, all this took place despite huge a public criticism of the malpractice.
Apart from adversely impacting the financial health of the banking sector, defaulted loans provide a significant reason for the interest rates on bank loans to be still in double digits, which is, again, deemed responsible for many industrial loans to become defaulted in the present dull business condition. Above all, the situation, if allowed to continue, may seriously affect trade and commerce, both domestic and international. It is high time that the government made a course correction in managing the banking sector, in general, and state-run banks, in particular.

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