Implementing new conditions to improve the status and performance of eight state-run banks depends on several factors, most of which are legal and political, an official of the Bank and Financial Institutions Division said on Wednesday.
“One of the recommendations made to improve the state-run banks suggests revealing the names of large loan defaulters, which could be tricky seeing as some of them are also politically influential and even part of the government,” said one official, seeking anonymity.
“Furthermore, we also have to ensure that the new conditions do not contradict any of the existing laws,” the official added.
A delegation of Bank and Financial Institutions Division held a meeting with the managing directors of eight state-run banks at the Finance Division auditorium on Wednesday, where they discussed how to improve the state of the banks and recover the default loans.
“We are trying to formulate a set of conditions based on the 39 recommendations made during a workshop by the Bank and Financial Institutions Division two months ago,” Md Eunusur Rahman, senior secretary at the division, told the Dhaka Tribune after the meeting.
He further said the new set of conditions would be focused on mainly improving the financial status and the management of eight state-run banking institutions: Sonali Bank Ltd, Janata Bank Ltd, Rupali Bank Ltd, Bangladesh Development Bank Ltd, Bangladesh Krishi Bank, Rajshahi Krishi Unnayan Bank, Bangladesh House Building Finance Corporation, and Investment Corporation of Bangladesh.
In order to implement the new set of conditions, the government may have to revise some of its existing policies, he pointed out.
Also Read - Govt for stricter performance criteria for state-run banks
Eunus also mentioned that since the Bank and Financial Institutions Division did not have the capacity to tackle the technical recommendations, it would work on them in association with the bank MDs.
“They run the banks, so they can suggest which conditions can be implemented, and which cannot,” he added.
The senior secretary said another meeting might be required to further discuss the 39 recommendations and how effective they could be to enhance the overall state of the state-run banks.
Officials who attended the meeting said some of the bank MDs mentioned that while punitive actions against officials giving out bad loans already exist in the law, rewards for approving good loans have yet to be introduced.
“Bank officials will be encouraged to provide loans to good borrowers if the government introduces a reward system for efficient workers,” said one of the officials.
The officials further said they were considering separate debt monitoring for large loan defaulters – who have borrowed more than Tk100 crore – by the Bangladesh Bank’s debt monitoring system.
The Indian central bank has a similar system to track their large loan defaulters, they added.
However, even if the Bangladesh Bank monitors the large loan defaulters, the state-run banks will still be held responsible for them, the officials said.
Default in loans issued by the country’s state-owned banks accounts for 27% of the total in the banking sector, according to sources in the sector.