Overhauling banking sector

The banking sector of the country has been in a difficult situation for a long time, primarily due to an ever increasing volume of classified loans. By the end of March this calendar year, for instance, the total loan disbursed from all the banks of the country stood at Tk 16.40855 trillion. Of the entire amount, 11.10 per cent constituted non-performing loans. The amount so defaulted was the highest in the country's history. The state-run banks' share of the soured loans was 27 per cent, according to Bangladesh Bank (BB) data. Some economists think, the actual size of the classified loans will be 25 per cent of the total outstanding loans, if all the written-off, rescheduled and the loans stuck in courts are also taken into account. Strangely, this malignant growth of non-performing loans (NPLs) has taken place under the watch of the banking sector regulator, the central bank.
Of course, the treatment necessary to stop this rot responsible for all the ills of the financial sector struggling with unacceptable NPL ratio, stressed assets, liquidity crunch etc; is banking sector reform. This idea of banking reform through instituting a banking commission, too, is not new. The former finance minister late AMA Muhith, too, did once promise to form such a commission, but it never saw the light of day. Even his successors did so but nothing happened finally. So, the question that naturally arises is what is coming in the way of this all-important task of saving the banking or the financial sector from its impending ruin?
A section of influential people have been behind the evil practice of non-repayable bank borrowing, embezzling of bank funds and outright looting of both public and private banks. In this connection, it may be recalled that the tenure and hence, power, of the bank directors have been repeatedly increased by amending the original Bank Company Act of 1991. Lastly, through the Bank Company (Amendment) Act 2023. So, it has come as no surprise that some director have siphoned off hundreds of billions of taka from banks. As expected, a lack of accountability and regulatory failure have taken over. In fact, the abuse of policy is all-encompassing that include the banking sector, fiscal management, exchange market regime, macroeconomic management, inflation control and the list can be made longer. Notably, the neighbouring Sri Lanka's financial sector did pass through a similar rocky territory. But thanks to his efficient handling, the governor of the central bank of Sri Lanka has been able to rise, as though, from the ashes. This can be a lesson for the authorities at the helm of the country's central bank here. However, to get the ball rolling, the motive force, as always, is the political will. That is more so, because, the Bangladesh Bank has been beholden to its political masters for long, though, ideally, it should not have been the case. But the power to play an independent role by the central bank governor also depends largely on his/her competency and personal integrity – a quality the central bank heads, most of the time, failed to demonstrate.
Now that the country has turned the corner following a massive upsurge led by students backed by the mass people, things seem to be looking up. So, it's time to grab the opportunity and make it a task of the newly formed interim government to start work for instituting a commission aimed at reforming the banking sector lock, stock, and barrel.