IDCOL has a pile of loans that it thinks will never be recovered and has requested the government to allow it to write off about Tk 700 crore in outstanding loans
How does one solve a problem like the Infrastructure Development Company (IDCOL), a state-owned specialised non-bank financial institution, finds itself in?
The NBFI was set up in 2003 to fund renewable infrastructure projects in Bangladesh, particularly solar home systems (SHSs). But thanks to the current government’s improved electricity distribution, the demand for SHSs has cooled off in off-grid areas.
Now, IDCOL has a pile of loans that it thinks will never be recovered and has requested the government to allow it to write off about Tk 700 crore in outstanding loans, which goes against the central bank regulations.
Earlier on December 10 last year, IDCOL sent a letter to the government through the Economic Relations Division for approval of the waiver and write-off of about Tk 700 crore in outstanding loans with its partner organisations (Pos) under the solar home system (SHS) programme in off-grid areas.
Dhaka Tribune has a copy of the letter.
Any NBFI cannot write-off its outstanding loans before the loans become default but IDCOL is pushing for an unhealthy practice to keep its balance sheet clean and fresh, said an industry expert requesting anonymity.
As per the Bangladesh Bank (BB) regulations, the loan has to be consecutively classified as bad and loss-making for three years for eligible for a write-off. A 100 per cent provisioning for the loan must also be maintained for the write-off of any loans.
A case has to be filed in the court of law for writing off any loan, as per the BB regulations.
Before applying to the government, the IDCOL board in its 273rd meeting on September 9 last year decided that about Tk 700 crore of the total of Tk 1,491 crore in outstanding loans with its partner organisations under SHS programme would be written off and the remaining amount would be paid by the Pos.
On obtaining approval of the government, the NBFI will seek permission from the BB for writing off the loans.
However, the government has yet to sign off on IDCOL’s loan write-off policy.
Before the move, IDCOL waived interest amounting to Tk 195 crore payable by POs from July 2018 to December 2024.
“Our demand is contradictory with the central bank regulations about loans write-off policy but the government should approve the proposal with the interest of the nation,” Mahmood Malik, chief executive officer of IDCOL, told the correspondent at his office on Tuesday.
The government and the BB have the power to change the regulations and the two should exercise that right in this case as the IDCOL SHS programme faced a sudden and drastic decline in installation in the last couple of years due to several reasons beyond IDCOL’s control.
“We applied to the government for write-off as we observed that the loans with partner organisations (Pos) are very difficult to recover.”
IDCOL POs faced enormous challenges in collecting payment from the clients owing to rapid grid expansion by Rural Electrification Board (REB), free distribution of SHSs under TR or KABITA programme and the emergence of an unregulated SHS market outside of the IDCOL programme, he said.
As of December, 2019, the total outstanding loans of IDCOL to its partner organisations under the SHS program stood at Tk 1,491 crore, which is 33 per cent of its total loans.
Of the total 44 POs of IDCOL under the programme, three have large amounts of loan outstanding: Grameen Shakti, Rural Services Foundation and Srizony. Then two POs have very low repayment rates: Green Housing and Energy and Bangladesh Rural Integrated Development for Grub-Street Economy.
The POs HilfulFuzulSamaj Kalyan Sangstha (HFSKS) and MAKS Renewable Energy Company would not be considered for the benefits as they are willfuldefaulters, as per recommendations of the IDCOL board.
The NBFI already wrote-off about Tk 120 crore in defaulted loans of HFSKS and filed a case against it, Malik said.
IDCOL has no deposits. Basically, the NBFI collected funds from the government and international development partners and lends to infrastructure as well as renewable energy and energy-efficient projects in a sustainable manner through public-private-partnership initiatives.