Stimulus for loan defaulters!

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Shamsul Huq Zahid
The central bank circular issued last Monday allowing the commercial banks to reschedule without down payment the default loans of business establishments affected by the actions of the last caretaker government against their owners is sure to prompt many to raise their eyebrows.
Despite the fact that accusing fingers would be pointed at the Bangladesh Bank, the decision to extend concession, understandably, is a political one. The decision was just formalized at a special meeting chaired by the finance minister and attended by the central bank governor, two deputy governors and the finance secretary.
A good number of businessmen affected by the anti-graft actions of the caretaker government are also actively involved in politics. So, it could be that the decision has gone in their favour.
The concession that will remain effective until June 30 next year, on the one hand, involves the issue of discipline in the banking sector, and on the other, some other borrowers who have defaulted on repayment of loans might also feel discriminated against for their lack of power to influence the powerful people in the administration.
According to a newspaper report, about 31 businessmen, accused of corruption and other financial irregularities, went to jail or had gone into hiding during the two-year rule of the military-backed caretaker government. The incumbent government has withdrawn cases against some businessmen. But some others are still facing the charges.
There are opposing views on the government decision to withdraw anti-graft cases against politicians and businessmen by the incumbent government. Some people tend to believe that the accused persons should have come out clean through normal legal process while some others do support the government action out of the conviction that the cases were false and motivated. But the popular perception about the integrity and honesty of politicians or businessmen-cum-politicians in this part of the world has not changed much.
However, the BB circular makes the establishments owned by all businessmen who faced wrath of the caretaker government eligible for down payment-free default loan-rescheduling facility. Yet the circular has left some leeway for the banks to exercise their wisdom while granting the facility. It has asked the banks to take decisions on the basis of bank-client relationship and importance of individual cases. Whether the management of the banks would be really free to exercise that freedom remains to be seen.
Moreover, the BB circular has not made it clear whether the borrowers having poor track record in loan repayment even before the 1/11 would be eligible for the loan scheduling facility or not. There should be no reason for the banks to treat all the borrowers in the same way.
Former Adviser to the last caretaker government Dr. Mirza Azizul Islam, while giving his reaction to a Bengali daily on the BB circular raised a pertinent issue. He questioned the justification of compensating individual owners by offering financial concessions to their firms. Dr. Islam felt that an organization and its owner were two different entities.
There is no denying that punitive actions against owners are bound to leave some adverse impact on the operations of the establishments they own. But the businessmen, who were harassed during the caretaker government, in most cases, own big establishments, industrial or otherwise. Qualified management teams do usually run these organizations having policy direction from the board of directors. Unless the government decides to create all sorts of obstacles, the absence of the owners is unlikely to affect their operations much.
Thus, a dispassionate look at the latest circular would only reveal the increasing propensity of the government to get into the business of the statutory regulatory bodies that should, under the standard rules of the game in to-day's world, should not be its business.
It is to be noted here that it took a long time to restore discipline in the loan operations of the banks. The share of the non-performing loans (NPL), which was as high as 40 to 45 per cent of the total outstanding loans in the mid-eighties, has gradually come down to 13 to 14 per cent because of strong monitoring by the central bank in recent years. The government implemented the financial sector reforms programme and amended relevant laws to make the operations of banks smooth and flawless.
The central bank has been trying to strengthen its regulatory role over the years and to standardise the operations of the local banks. So, nothing having the potential to undo the gains achieved so far, should be taken recourse to.
On their part, the regulatory bodies do also need to concentrate their efforts at this stage on capacity building so that they can discharge their functional roles properly, without giving any wrong signal to other operational entities.