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Fresh bailout for state banks

The government may again allocate a Tk 2,000 crore fund for state-run banks in the upcoming budget to help them meet capital deficit, continuing its years-long “go easy” attitude towards the lenders despite their irresponsible lending practices.

Financial analysts believe the sector would have been a lot different had the government not ignored the recommendations, one of which called for an end to political interference in the banks.

In recent years, several state-run banks, including BASIC Bank, Sonali Bank and Janata Bank, have been hit by major financial scandals. They distributed loans worth thousands of crore of Taka in violation of banking rules.

Instead of taking measures to prevent such incidents, the government keeps allocating funds for the banks from the state coffers, ignoring strong criticisms from some economists who are against helping out the lenders with taxpayers' money.

From fiscal 2005-06 to 2016-17, the state-run banks received Tk 10,272 crore in capital support, Muhith told parliament in February.  

In the current budget, about Tk 2,000 was allocated for the banks as part of the recapitalisation plan. The amount has not been disbursed yet.

This time, the figure may remain unchanged, Muhith and finance ministry officials said.

Despite injecting money years after years, capital shortfall at the banks stood at about Tk 20,000 crore in December last year, up from Tk 13,819 crore a year ago.

Financial analysts have long been demanding that the government take reform measures to bring discipline in the banking sector largely ridden with irregularities.

“Terms of references have been fixed. Now, the members will have to be picked,” he said.

A top official of the banking division told The Daily Star that the division has already sent a proposal to the finance minister outlining the number of the members of the planned commission, their names, and functions.

Muhith may finalise the formation of the commission soon after consultation with the prime minister, said the official.

In 1996, the Awami League government formed a five-member banking reform committee, headed by Prof Wahiduddin Mahmud. It submitted its report in December 1999.

The committee made about 188 recommendations for the Bangladesh Bank, state-owned banks, and new banks.

One of the recommendations was that the government would form a National Banking Advisory Council, which will be tasked with forming a panel for picking directors of state banks.

But, no such council has ever been formed.

The AL-led government, after assuming power in 2009, appointed the chairman and directors of the banks on political considerations, said the analysts. Later, scams started hitting the banks and many plunderers still remain scot-free.

Take the instance of BASIC Bank, which was once a healthy public bank. In the four years between 2009 and 2013, Tk 4,500 crore was swindled out of it.

Abdul Hye Bacchu, who has connections with political quarters, was the bank chairman during that time. Yet, Bacchu was not made accused in any of the 56 cases filed by the Anti-Corruption Commission in connection with the country's biggest loan scam.

It was such a blatant case of political power in play that the High Court has recently rebuked the ACC for foot-dragging and showing weaknesses in investigating the BASIC Bank scam.

The court observed that the ACC applied “pick and choose” policy in this case as it was yet to arrest “any of the beneficiaries of the loan scam”.

In case of the Janata Bank scam, some little-known companies, belonging to the same person, were given loans to the tune of Tk 5,500 crore. None of the board members or the chairman was held responsible for the felony although they sanctioned the loans.

On October 7, 2013, the ACC submitted charge sheet with a court against 25 people for swindling over Tk 2,600 crore of Sonali Bank.

All these pointed to a lack of governance in the banking sector.

As per conditions of an International Monetary Fund loan, the government amended the Bank Company Act. Later, the government backtracked following pressure from bank owners.

As new banks were approved on political consideration, the financial condition of many private banks, including Farmers Bank, has deteriorated.

Muhith said no commission report has fully been implemented. It is implemented partly all the time, he added.

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