Govt banks generous with defaulters, waive Tk4k crore interest

The state-owned commercial and specialised banks seem to have kept on stretching their hand of charity towards loan defaulters as they have, yet again, exempted borrowers from paying about Tk4,000 crore interest on loans in just 14 months.

From January 2019 to February this year, the amount of interest waived was more than 300% from the sum they granted in 2018.

With this amount, these banks exempted bad borrowers, in the last 10 years, of more than Tk14,560 crore in interest, an amount that could construct almost half the Padma Bridge. The amount is over 400% bigger than the exemption made in the previous eight years (2001-2008).

Finance Minister AHM Mustafa Kamal is scheduled to present the data on interest waivers before the parliament today.

Bankers linked the upsurge in interest waivers to the political pressure from defaulters and the banks' move to collect one-time money from borrowers. They said most of the banks are giving interest waiver facility to the borrowers by relaxing the cost of funds.

Economists said such an exemption, by any level, is immoral and discouraging for good borrowers. It will also encourage intentional defaulters, simultaneously, to not pay the interest accrued on their loans, thinking that they will be given the opportunity in the future.

Earlier during the regime of the 1/11 government, the waivers of interest also shot up by over 300% than the previous year's sum, riding on the awarding of an opportunity to affected businessmen to get their bad loans rescheduled. However, the amount of waived interest dropped significantly in the following years.

Pradeep Kumar Dutta, former managing director of Sonali Bank, told The Business Standard that influential borrowers got their interest waived during rescheduling of defaulted loans. The amount of waived interest grew following the rescheduling facility in 2019 upon 2% down payment awarded to defaulters.

"There are some borrowers who repay loans taking the one-time interest waiver facility. But there are many who take it on repeated occasions. Bent to the pressure from influential quarters, banks' board of directors allow the interest waiver facility," he added.

Khondkar Ibrahim Khaled, former deputy governor of the Bangladesh Bank, said government's soft attitude towards the defaulters is the chief reason behind such immunity.

"The government needs to be tougher against such people. But these people either are involved in various levels of the government or take help from the powerful section of the government. That is why such a trend has been in practice."

Banks are not to be blamed for this bad practice. Rather, the government should have a political commitment that they will not allow it to continue by misusing the public money, he added.

Meanwhile, eight state-owned commercial and specialised banks are filling their capital deficit with the people's tax money although a large amount of interest on bad loans is waived every year.

The finance ministry has, so far, injected Tk17,000 crore to the banks' capitals from the budget from 2011-12 to 2018-19.

But after taking the charge, Finance Minister Mustafa Kamal announced that he would not give any more money to the banks to cover their capital shortfalls. As a result, the finance ministry made no budget allocation in this regard from the last financial year.

Earlier, a finance ministry circular issued in 2006 gave the banks a facility to waive interest on bad loans owing to a crisis in business at that time. It also allowed banks to waive interest during rescheduling defaulted loans.

The interest waiver facility was also given in 2013 for the recovery of defaulted loans from ailing industries. A total of 279 ready-made garment factories and 411 non-textile and non-garment factories took the facility.