BB to go tough against loan diversion by banks

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FE Report
The central bank is going to take a hard-line against the commercial banks that would fail to maintain instructions on loan utilisation properly, officials said.
"We'll take actions against the chief executive officer (CEO) personally along with the banks if they do not carry our instructions relating to utilisation of loans within the timeframes," an executive director of the Bangladesh Bank (BB) told the FE Sunday.
The central bank has asked the commercial banks to submit the list of loans worth Tk 10 million or more, which have been diverted from one sector to another by December 15 this year.
The commercial banks have been instructed to adjust such loan portfolios by January 15, 2011, according to a directive, issued by the BB Thursday.
The central bank will impose restrictions on some major expansionary activities including issuance of licence for authorised dealer (AD) branch, generally known as foreign exchange branch, and approval for opening of new branches.
The indirect interventions may take place after the deadlines, the central bank officials added.
Besides, the CEO will be held personally responsible and legal action will be taken against him if any irregularity is detected in the central bank's inspection, they added.
The central bank has taken the move against the backdrop of identifying incidents of diverting loans to the capital market from industries.
The BB executive also said probe teams are now working in both Dhaka and Chittagong to find out such loan diversion as well as quality of asset.
"We've to ensure utilisation of loans," another BB senior official said, adding that the loans could not be used in purposes other than they are sanctioned for.
The central bank earlier asked the chief executives and managing directors of all scheduled banks to strengthen monitoring of loan utilisation.
"It has negative impact on the economy as productive sector loans are being used in unproductive areas," a BB circular said, issued on November 4 this year.
On the other hand, a total of 11 private commercial banks (PCBs) earlier identified as they have exceeded shares' holding as well as exposure limits.
The PCBs have been instructed to bring down their holding and exposure within the prescribed limit by November 2010.
"We'll take next course of actions after receiving the PCBs latest reports, scheduled to be submitted to the BB by December 10," another BB official told the FE.