• Saturday, Nov 16, 2019
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HC extends freeze order on Bangladesh Bank circular by 2 months

  • Published at 10:24 pm June 24th, 2019
File photo of Bangladesh Supreme Court Dhaka Tribune

Bad loans reached Tk220,000 crore in the last 20 years, according to Bangladesh Bank

The High Court has extended its earlier order freezing a Bangladesh Bank notice, which had offered relief to loan defaulters, by two more months.

In a circular on May 16, the central bank had aimed to allow defaulters to regularize their bad loans by paying a 2% down payment only, instead of 10% to 50%.

The freeze on the Bangladesh Bank notification will now remain in force until August 24.

The High Court bench of Justice FRM Nazmul Ahsan and Justice KM Kamrul Kader gave the ruling on Monday following a supplementary petition to extend the previous month-long freeze order.

Advocate Manzil Murshid on behalf of Human Rights and Peace for Bangladesh stood for the petition, while Barrister M Moniruzzaman represented the central bank.

Bangladesh Bank on Monday submitted a report to the High Court saying that the amount of total defaulted bank loans was Tk220,000 crore (Tk2.2 trillion) over the last 20 years.

The report said that of the total amount, Tk110,000 crore is eligible for collection, Tk80,000 crore involves court orders in connection with different cases, and Tk30,000 crore cannot be realized.

After the May 16 circular was issued, experts came down heavily on the plan, saying it would cast a shadow over the whole banking sector. 

They said that offering such facilities would only increase the number of wilful defaulters and discourage borrowers in good standing from repaying loans.

Advocate Manzil Murshid said the court found the circular protecting bad people and oppressing the good.

“They (defaulters) will get rid of the loan defaulters’ list by paying just 2% and their names will not be in CIB (Credit Information Bureau). By doing that, they will be able to take thousands of crores of taka as new loans again, which will break the backbone of the banking sector,” he said.

Also Read - Top 300 loan defaulters named in parliament

The lawyer added that the court had also observed that banks were desperately trying to work in favour of defaulters. “Thousands of crores of taka have been siphoned off from banks in loans, but no steps have been taken. If they (defaulters) get another chance, they will do it again," he said, quoting the court observation.

The court said Bangladesh Bank was discriminating against genuine business people by making them pay 14%-15% interest rates.

The court also highlighted the negligence of banks in executing Prime Minister Sheikh Hasina's instructions to lower interest rates on loans to single digits.

Dhaka Tribune on Tuesday reached the World Bank’s lead economist at their Dhaka office, Dr Zahid Hossain, and former caretaker government adviser, AB Mirza Azizul Islam, for comments, but they declined to comment on an ongoing case.

The circular

Although almost all sectors were included in the latest loan rescheduling policy, the Bangladesh Bank circular specifically mentioned a number of privileged priority sectors such as wheat, food items, edible oil and refineries, and ship-breaking.

Defaulting loans at specialized banks sanctioned for purposes other than agriculture would also be entitled to the facility, it added.

According to the circular, defaulters had to apply for the facility within 90 days of its issuance. Once approved, they would have to repay the rescheduled loans within the next 10 years, with a one year grace period.

The rescheduled loans would have to be repaid at a 9% interest rate only, it added.

Besides that, the circular said banks could waive all interest for defaulters, depending on the bank-client relationship.

It also said loan defaulters could enjoy a “one-time exit” facility by paying only the bank's cost of funds and the principal loan amount. To avail the facility, defaulters would have to pay the outstanding amount within a year.

Currently, a bank's cost of funds is typically between 3% and 5%.

Loans in default before December 31, 2018, would be considered for the rescheduling policy and the “one-time exit” facility, the circular added.

Where do we stand now?

Although the government awarded similar incentives to loan defaulters several times in the past, the situation has deteriorated instead of improving, with loans in default nearly hitting Tk100,000 crore for the first time in the country’s 48-year history.

As of December 2018, there was a total of 266,118 loan defaulters in the country and the monetary value of the bad loans stood at Tk93,911 crore — mainly due to poor governance that has plagued the financial sector in the absence of a strong and independent central bank, as well as lack of political will.

Defaulting loans stood at Tk50,155 crore in 2014, Tk51,371 crore in 2015, Tk62,172 crore in 2016, and Tk74,303 crore in 2017, according to Bangladesh Bank data.

On February 28 this year, Finance Minister AHM Mustafa Kamal also cited the top 20 defaulters in parliament by name.

HC wants list of loan defaulters

The High Court on May 16 also ordered Bangladesh Bank to submit a list of borrowers with over Tk1 crore in default loans by June 24.

Earlier, on February 13, the court also asked the authorities concerned to submit a list of loan defaulters and money launderers of the last 20 years.

It also issued a rule asking the authorities to explain why an order should not be given to form a powerful commission to identify past irregularities and corruption in the banking sector.