The Hallmark loan-the largest-ever single-borrower loan scam in the country-is an "outright fraud", it is not just a loan, Dr Atiur Rahman said on Wednesday.
"Some of the non-performing loans do not deserve to be treated as non-performing loans, those are outright fraud," the former central bank governor added.
He was speaking at a post-budget discussion organised by Unnayan Shamannay at its office in the capital.
Dr Rahman is the chairman of the non-profit and non-governmental research organisation.
He said, "I know the board knew Hallmark loan doesn't deserve to be the status of a loan."
"Law-enforcement agencies should treat a fraud as a fraud. And they are doing so. Everyone involved with this loan is now in prison for the reason."
The loan scam was perpetrated by the largest state-owned Sonali Bank by lending Tk 34 billion (almost $454 million through forgery between 2010 and 2012.
Dr Rahman was the governor of Bangladesh Bank at the time.
The government should go tougher with such loans, he said, adding that trade financing is the single sector where largest amounts of bad loans are accumulated now.
"Bad businessmen open L/C and import products, then sell it and don't repay banks' money. Thus, the largest amounts of bad loans are accumulated in trade financing," he said. Dr Rahman said good businessmen could be defaulters.
"If prices of goods fall in international market and impact might be there, we would treat them as businessmen and loans provided to them as NPLs."
"But the loans that were purposed to appropriate have to be dealt differently," the noted economist mentioned.
He said the central bank and other conventional banks should be empowered legally to act on such loans.
The budget for fiscal year 2019-20 has proposed to bring some reforms in banking sector, but political will is a prerequisite for the reforms, he cited.
He said the government does not have scope to borrow from banks as the banks have liquidity crisis.
The former governor suggested foreign loan borrowing to meet the demand of budget deficit.
There are still risks of a global financial crisis, he said, adding that the country should be ready for this.
At the event, former director general of Bangladesh Bank Management Institute Dr Toufic Ahmad Choudhury said unrestrained NPL is responsible for high rates of interest in bank loans.
He said "cost of fund" or "management cost" is not the cause of the rising rates of interest in bank loans.
"If we can reduce existing volume of NPL, interest rates will go down automatically," he argued.
He said the finance minister said he wants to provide 'exit policy' for loan defaulters.
Dr Choudhury, also a former top executive in banking, said loan defaulters have already received a lot benefits. Now what does it mean with exit policy again?
He thinks the government is planning to write off those loans by way of an exit policy.
The former banker said every bank should set up a work-out department to exclusively deal with bad debts.
Former National Board of Revenue chairman Dr Nasiruddin Ahmed said the revenue target will not be realised if the government does not strengthen NBR's capacity.
NBR needs more manpower and automation. It is not possible to achieve without automation," he stated.
Dr Ahmed stressed the need for alternative dispute resolution for increased tax revenue.
Bangladesh Institute of Development Studies senior research fellow Dr SM Zulfiqar Ali, Prof Abu Yousuf of Dhaka University, Women Entrepreneurs Association president Nilufar Ahmmed Karim and Prof Dr AKM Enmaul Haque of East West University also spoke.
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