A former top central banker Khandaker Ibrahim Khaled last week suggested putting the state-owned commercial banks (SoCBs) under full control of the Bangladesh Bank to help the latter from sinking further. Â He, however, vehemently opposed their divestment citing the presence of a large number of state-owned banks in neighbouring India as an instance.
However, Mr. Khaled is not the first person to demand vesting of full regulatory authority with the BB over the SoCBs. Most top central bankers in the past had pressed for it. Economists preaching market-based economic practices and the major multilateral lenders time and again also have been also making identical suggestion. They are even one step ahead for they want the government to divest all the public sector banks that together have become a constant headache for it.Â
But the government does prefer to keep its full control over these banks, no matter how troubling they are. After all a father cannot abandon his children just because they are errant!Â
The incumbent finance minister and some of his predecessors made caustic comments about the performance, financial or otherwise, of these banks. But most of them dismissed forthwith any suggestion of putting the latter under the full regulatory control of the BB or divesting them.Â
But the rejection of the suggestion has been exacting a heavy cost from the economy. Almost every year the government is forced to pump some amount of taxpayers' money into them to stabilise their capital base, eroded largely because of the presence of high volume of non-performing loans (NPLs). More importantly, loan scams, engineered by inept management, have vitiated the environment of the entire financial sector.Â
The state of affairs with the SoCBs is very much frustrating. The share of NPL in the outstanding loans of these banks, according to the recent BB statistics, is well over 24 per cent while the same in the case of private sector banks is nearly 6.0 per cent.
However, this is not the true picture in both the cases. The percentage of NPL available with the BB is not the real one. The size of the NPL would be much higher if the amount usually window-dressed through various mechanisms is included. Â
The situation with the public sector banks is pretty bad. There has to be some improvement in any form, be it through transfer of controlling authority or divestment. The taxpayers should not be forced to pay money anymore for recapitalisation of the inefficient banks. Nor the financial sector should face disruption because of major irregularities in loan sanctioning.Â
What is the harm if the central bank regulates the SoCBs the way it looks after the private commercial banks (PCBs)? The ownership of the PCBs is not anyway affected due to the regulatory control of the BB. This will be true also for the SoCBs. The government remains the owner.Â
Divestment notwithstanding the opposition coming from certain quarters might prove even a better solution. But that is very much unlikely. The ruling circles are not interested in giving up the state-ownership over banks.
Those who cite Indian instance in support of keeping the state ownership over some banks should not forget the deplorable financial health of the Indian state-owned banks. The incumbent governor of the Reserve Bank of India (RBI) is now engaged in a Herculean task of streamlining the massive NPL of those banks. And he is facing strong resistance from various quarters, including some ruling party honchos. Â
Divestment of the SoCBs is a major decision that the government, at the moment, is unwilling to take, it seems. But taking of certain effective measures to improve the conditions, financial or otherwise, of these banks is highly essential. Those cannot be kept pending anymore, for delay has taken a heavy toll on the country's financial sector.Â
The transfer of control to the central bank instead of giving up ownership should be the preferred option for the government. The government is unwilling to go for it. Both ruling politicians and bureaucrats have their interest in it. The government finds these banks as its subservient financial institutions that would submit to its will without question. Accommodating some people chosen under political consideration could be one option. Bureaucrats do also have some interests. While serving in the finance ministry, they can also accrue some benefits out of these banks. Â
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