Financing of sick industry is not always wise from bankers' point of view
Saturday, 25 August 2007
Mahbubul Haque Chowdhury
BANKERS are dealers in credit. They are custodians of depositors money. Bankers are also partners of economic development. Apart from seed money i.e. raised capital, the bank accepts deposit from the general public and invest the same judiciously so that the invested money will come back to bank's vault with profit. So the bankers need to remain vigilant over, and cautions about their lending policy. The money once out from the grip of bankers to borrowers, its ownership is changed. The borrower treats the loan money as their own money and starts to spend the same as his own. The problem of sickness of industries factories, mills and business houses start from this stage.
The sickness of industry and business houses is nothing new. The main reason of sickness is inefficiency of the entrepreneur. The man behind the machine has always been scolded for inefficient running. Our experience shows that the entrepreneur has always tried to drain out money from the loan money which result in shortfall of capital. The entrepreneur always tries to conceal the facts and prepare rosy project profile to get loan. Sometimes they manage the bank officials to get the project approved.
The reasons of sickness are many. First of all project viability is not measured correctly. Right machineries are not installed, Marketability is not correctly assessed. Cost ratio to profit is not correctly worked out. As a result, the project gets sick and causes a heavy loss to the economy.
But the entrepreneurs blame the banks and financial institutions and put pressure upon the latter for further financing. The term of balancing, modernisation, replacement and expansion (BMRE) is used. The entrepreneurs raise the causes of power failure, non-availability of gas, fuel at a cheaper rate. The causes of labour and political unrest, natural calamities, hartal, road blockade, tariff rate etc., are the common factors. The entrepreneurs make it a political issue and press the bankers to finance the project.
Immediately after the liberation, some such young entrepreneurs came out with plans to establish industries in the war-ravaged economy.
A good number of entrepreneurs who took loans from Bangladesh Shilpa Bank (BSB) or Bangladesh Shilpa Rin Sangstha (BSRS) and nationalised commercial banks (NCBs) have totally failed to show any entrepreneurship for want of any knowledge.
These first generation industrialists approach the government to consider the case for providing them further finance.
A list of sick industries were prepared by a committee during the period of the then Finance Minister Mr Saifur Rahman (1990-95). The bankers were asked to give loans to the sick industries. The bankers finding no way out arranged finance to many sick industries but the result that came out was not at all satisfactory. Income generated was found quite inadequate to service the debt.
We have seen a new attempt is on to prepare the list of sick industries. Many businessmen do often take the plea of employment opportunities and threaten the govt. and bankers that many people whom they employ will be jobless. They cite the case of the high rate of interest. They are also heard complaining that the loan money could not reach them well in time. So they could not make profit and could not repay the loans. If refinancing needs are to be considered, the bankers should get adequate fund from the govt. source to cover up their fund shortage.
The concept of sick industry is very common. Some businessmen and industrialists will always try to raise these demands to get some monetary benefit. But industries that are sick because of structural reasons should not be allowed to survive; rather, these should be stopped at the first stage of sickness.
The writer is a former general manager of Agrani/Sonali Bank
BANKERS are dealers in credit. They are custodians of depositors money. Bankers are also partners of economic development. Apart from seed money i.e. raised capital, the bank accepts deposit from the general public and invest the same judiciously so that the invested money will come back to bank's vault with profit. So the bankers need to remain vigilant over, and cautions about their lending policy. The money once out from the grip of bankers to borrowers, its ownership is changed. The borrower treats the loan money as their own money and starts to spend the same as his own. The problem of sickness of industries factories, mills and business houses start from this stage.
The sickness of industry and business houses is nothing new. The main reason of sickness is inefficiency of the entrepreneur. The man behind the machine has always been scolded for inefficient running. Our experience shows that the entrepreneur has always tried to drain out money from the loan money which result in shortfall of capital. The entrepreneur always tries to conceal the facts and prepare rosy project profile to get loan. Sometimes they manage the bank officials to get the project approved.
The reasons of sickness are many. First of all project viability is not measured correctly. Right machineries are not installed, Marketability is not correctly assessed. Cost ratio to profit is not correctly worked out. As a result, the project gets sick and causes a heavy loss to the economy.
But the entrepreneurs blame the banks and financial institutions and put pressure upon the latter for further financing. The term of balancing, modernisation, replacement and expansion (BMRE) is used. The entrepreneurs raise the causes of power failure, non-availability of gas, fuel at a cheaper rate. The causes of labour and political unrest, natural calamities, hartal, road blockade, tariff rate etc., are the common factors. The entrepreneurs make it a political issue and press the bankers to finance the project.
Immediately after the liberation, some such young entrepreneurs came out with plans to establish industries in the war-ravaged economy.
A good number of entrepreneurs who took loans from Bangladesh Shilpa Bank (BSB) or Bangladesh Shilpa Rin Sangstha (BSRS) and nationalised commercial banks (NCBs) have totally failed to show any entrepreneurship for want of any knowledge.
These first generation industrialists approach the government to consider the case for providing them further finance.
A list of sick industries were prepared by a committee during the period of the then Finance Minister Mr Saifur Rahman (1990-95). The bankers were asked to give loans to the sick industries. The bankers finding no way out arranged finance to many sick industries but the result that came out was not at all satisfactory. Income generated was found quite inadequate to service the debt.
We have seen a new attempt is on to prepare the list of sick industries. Many businessmen do often take the plea of employment opportunities and threaten the govt. and bankers that many people whom they employ will be jobless. They cite the case of the high rate of interest. They are also heard complaining that the loan money could not reach them well in time. So they could not make profit and could not repay the loans. If refinancing needs are to be considered, the bankers should get adequate fund from the govt. source to cover up their fund shortage.
The concept of sick industry is very common. Some businessmen and industrialists will always try to raise these demands to get some monetary benefit. But industries that are sick because of structural reasons should not be allowed to survive; rather, these should be stopped at the first stage of sickness.
The writer is a former general manager of Agrani/Sonali Bank