State banks still hostage to influential borrowers

A number of state-owned banks continue to approve and reschedule massive project loans without proper scrutiny despite major scandals in recent years such as the Hall-Mark and BASIC Bank loan scams. Influential borrowers are still taking money out of the state banks in the name of project loans and the boards of those banks are approving them without scrutinising the viability of these projects. As a result, after a certain period of time the projects close down and the borrowers default on their loans. But, this is only the tip of the iceberg; influential borrowers are blessed with unethical facilities by the boards to regularise their defaulted loans. Bangladesh Bank has observed that performances of most of the projects to which state banks provided loans are very poor, a senior executive said. Both lenders and borrowers are interested in project loans as these loans can easily be shown as standard category through secret deals. The instalments of project loans can be deferred year after year on numerous grounds, the official said. Bangladesh Bank has very recently faced trouble with an unethical proposal from Virgo Pharmaceuticals, an influential borrower of Rupali Bank. The client, who owed Rupali Bank Tk260 crore as of December 2014, requested the bank to reschedule its two project loan accounts. According to the rescheduling proposal, the borrower requested the bank to keep the interest charge suspended for seven years. On the other hand, the client proposed to start paying off the loan instalments from 2023 on quarterly basis until the full payment in 2030. Although completely unacceptable as per banking norms, Virgo Pharmaceuticals’ proposal went further demanding more loans. It went so far as to ask the bank even to reduce the interest rate to 8.50% from the existing 9%. Mysteriously the board of Rupali Bank approved these unethical proposals of this influential borrower and sent it to Bangladesh Bank for final approval in June. At first Bangladesh Bank was surprised by the proposal and ignored it. But after a few days an influential lobbyist put heavy pressure on the officials concerned at the Banking Regulation and Policy Department (BRPD) of the central bank. Finally, the BRPD gave in and placed the proposal before Governor Fazle Kabir who, however, turned down the restructuring proposal. The central bank also raised question as to how the board of Rupali Bank had approved such a proposal in the first place. In September 2014, Bangladesh Bank had identified that the loan to Virgo Pharmaceuticals was given violating the single borrower exposure limit. The bank did not even inform the central bank in this regard. On this ground Bangladesh Bank fined the state-owned Rupali Bank Tk100,000 in August 2014. Later, the bank confessed to its wrongdoing and requested the central bank to reconsider its financial penalty. Atiur Rahman, the then governor of Bangladesh Bank, remitted the fine following the request. When contacted Rupali Bank’s new Managing Director Ataur Rahman Prodhan declined to make any comment on the issue saying that he was yet to know all about it. In another case Bangladesh Bank found that the Agrani Bank board had provided loans of Tk90 crore to the Earth Agro Firm project without scrutinising the capability of loan payment, cash flow, balance sheet and other necessary aspects. The borrower ultimately defaulted on the loan after a certain period, forcing Agrani Bank to reschedule the loan with no objection from the central bank in 2014, according to an investigation report of Bangladesh Bank. The central bank gave a no objection on condition of a 5% down payment. However, the client even did not pay that too.