‘Three tier lending will decrease defaults, increase SME loans’

The state-owned Rupali Bank has been in the banking sector for five decades after independence. Through its branches across the country, the organisation has been providing agency services to the government in collecting government revenue. For banks, loan defaults are the plague. To deal with such, Rupali Bank's Managing Director and Chief Executive Officer Md Obayed Ullah Al Masud has come up with the "Three-Tier Lending" model. In an interview with The Business Standard's Sakhawat Prince, the MD discussed the model and various aspects of the country's banking sector.

What was the role of the state-owned banks in the implementation of incentive loans during Covid-19?

The incentive package was a reasonable move by the Prime Minister Sheikh Hasina. Along with other countries of the world, our country, too, has suffered losses in all sectors, including industries and services. State-owned banks have made significant contributions to the economy of our country during this period. The impact of that is that our industrial factories are still in operation. After all, if we look at the Covid period, the growth of the world's GDP has slowed down, but our GDP was 7.5% during Covid-19 and now it's 6.5%.

How to implement the 'Three Tier Lending' to reduce the loan risk of Rupali Bank?

The tendency of our people to repay loans is very low. We always talk about defaulted loans. However, excluding the intentionally defaulting loan customer, I would say that many people also become defaulters for reasonable reasons.

Our model is for when we loan a manufacturing company for its working capital, say Tk100 crore. The main portion is spent to buy raw material for the working capital. Raw materials cost from 30% to 70% in the garment sector. But the person who was given the money may have bought the raw material from more than one person. The sellers, however, do not get all the money. Because the garments are big clients, the money remains in default.

Now under the new three-tier loan model, raw material suppliers, producers and marketers will be brought under one umbrella. Acting as a coordination, we will provide the loan to all the three through as a package. This will reduce the pressure on industrialists or large borrowers. No one will easily break it. As a result, the risk of bank loans will be reduced. At the same time, SME loans will increase manifold.

Are you thinking outside the conventional rules to reduce default debt?

There are two types of defaulting customers in our country: intentional defaulters and unintentional defaulters. There is no alternative to the law to recover debts from those who are intentional defaulters. Earlier, we used to use the bankruptcy law to pay off this debt. We are now suing the money loan court. The money laundering law seems to me to be a stronger law than the one used to recover a defaulted loan.

What kind of work is Rupali Bank doing in the agricultural sector?

When mango farmers became helpless soon after cyclones, Rupali Bank gave them loans. Loans were also given to mango juice producing factories so they could procure mangoes from farmers at cash price. As a result, mango farmers of the country managed to recover their livelihoods. Apart from this, Rupali Bank has given low interest loans to ginger and turmeric farmers in the hilly areas to make the country self-sufficient. We have also helped the farmers find places to sell the ginger.  The farmers are now able to sell their produce directly. Our slogan for this loan product is "Bangladesh is blessed today because the mountains of the country have risen". Ginger and turmeric can now be planted across the country. We have given a loan of Tk11 crore for ginger cultivation of which 100% has been recovered.

In addition, we have given loans to cattle farmers through Milk Vita. We have a role to play so that they can sell their milk directly to Milk Vita.

Banks are leaning towards corporate loans. What kind of customer are you focusing on?

Our bank is not out of big debt either. Our five branches are lending to a maximum of customers. Now we see that there is no alternative to micro loans. We must give importance to SME loans. We have recently held a meeting on disbursement of SME loans and our target this year is "SME Year". The economy develops only when there is balanced development. So, like other banks, we are also focusing on SME loans this year.

What measures have been taken to reward the officials of the default-free branches?

We always point out the bad, and don't speak about the good. Sonali Bank has more than 220 branches without defaulters and we have 144 branches. We have written to the customers of the branch without defaulters, "Customer brothers, salutations! This branch is without defaulters." To do this, the branch officials and managers have a role to play. Those who have contributed in these branches have been given financial rewards of Tk5,000-10,000.

Three thousand new employees have been hired in your time. How do you view this?

The role of the state is like that of a mother. Since we are a state-owned bank, we cannot think of layoffs. We are working together with all the staff so that our bank moves forward overall.

What will be your advice for new bankers?

The newcomers, however, are much more talented. If we can make it work, then I am hopeful that this country will go a long way when it is in the hands of the new generation. However, they have to work very hard at this time and increase their skills personally.

What steps is Rupali Bank taking in terms of internal compliance?

We have 45 divisions each, but all working on different areas. But there is a level of risk for each department. We have created a risk register for each departmental function. The highest risk at risk will be red in the register, those low will be yellow, and the ones which are risk-free will be green. As a result, management has become very easy for top management as we can easily identify risks.