Reining in default loans

A list of 100 loan defaulters has been disclosed in Parliament on July 10. Some big groups have taken huge amounts from banks and are not repaying the money. Their names, however, are not in the list. They have their names excluded from the default list through many techniques and strategies and political patronage. Some of these groups are also involved in share market scandal.
Economists and specialists have called for tough action against loan defaulters. The defaulters are always trying to get rescheduling of their loans and buying time for repayment. The government must not patronise these loan defaulters. Legal action has to be taken against them.
Most of the default loans belong to the government-owned banks. The Finance Ministry has to take responsibility for this. None can take loans without collateral and without the intervention of the government, that is, the Finance Ministry. That is why, the government will have to take bold steps to recover default loans. But in reality, protection is being given to some people because of their political loyalty. This protection has to be stopped. The defaulters need to be boycotted socially.
According to the Bangladesh Bank, total disbursement of loan stands at Tk 6,800 billion out of which Tk 730 million are in default. In addition, Tk 430 billion have been written off. Together these constitute 17 per cent of the total loans. Most of these default loans are from the government banks. This has a negative effect on the economy of the country. Default loans constitute one-fourth of the national budget.
Things are getting worse day by day as borrowers from some leading corporate groups have been taking depositors' money, never to repay. Eight state-run banks are the worst victims as a fourth of their loans has gone bad. As of April, the accumulated default loans in the economy was Tk 1,113 billion, higher than the development spending in the last fiscal year as disclosed by the Finance Minister in Parliament. The figure includes written-off loans.
Bangladesh Bank data show that non-performing loans account for 10.53 per cent of total outstanding loans. But analysts say that the figure would have been much higher if loans had not been rescheduled and restructured. In 2015,  Bangladesh Bank allowed large borrowers with at least Tk 5 billion loans to be rescheduled. Around Tk 150 billion were rescheduled in that year alone. Analysts say there is no record of anyone being punished for wilful defaults. Such inaction is encouraging unscrupulous businesses and individuals to become defaulters willingly.
A distinguished fellow of the Centre for Policy Dialogue (CPD) said growing bad loans are impeding further economic growth as banks' lending capacity gets tightened and good clients can not get loans at lower rates. Taking mortgage or collateral against loans at inflated prices of these mortgages has become another big problem for banks which fail to sell mortgaged assets. The market prices of are much lower than the loans.
Experts have been pursuing the government to set up a commission for banks. But nobody pays any heed to this proposal. If the Commission is mandated to reform the sector, accountability, transperancy and governance would have improved in the crippled banking industry. Had the borrowers utilised the money in productive activities, they could have paid their loans back.
There is an increasing tendency in private banks also. Directors of private banks take loans in 'benami' and misappropriate the money. They take loans in the name of relations, neighbours and even domestic servants. Loans are given to people without proper documentation and scrutiny. Applicants give heavy commission to directors and senior officials of banks for approval of bank loans. Therefore, these borrowers do not feel any obligation to repay loans. These are happening for want of proper auditing and lack of supervision by the Bangladesh Bank,
During the last few years, a huge amount of loan was given through political influence and bribing the bankers. These loans are now at the top of the default list. The borrowers are not repaying loans and are manipulating procedures. Bangladesh Bank has found in its enquiry that these loans were taken through fraudulent means and forgery. The directors and officials liberally granted loans. The tsunami of corruption took place during 2012-2014. During this period, big scandals of Basic Bank, Hall Mark group and Bismillah group took place.
According to Bangladesh Bank, during thee three months (0ctober-November) last year, bank interest of Tk 3 billion was written off. This  was reportedly done through political influence. This is against banking discipline. This has reduced the income of banks and has a negative impact on those who repay loans on regular basis.
Influential people managed rescheduling and their loans will not be in default for another 18 years. Fifteen big groups managed rescheduling of Tk 166.10 billion. Bangladesh Bank has found that bank officials were involved in unfair loan disbursement. Action was taken against a few. A parliamentary committee observed that officials are initially suspended but later reinstated.
The biggest problem of the banking sector is loan default. Interest rates can not be reduced because of loan default. As finally a list of defaulters has been published, initiative has to be taken to recover the loans. Legal action can be taken against defaulters. Action is also to be taken against those banks which have given loans without security.
The writer is an economist
and columnist. jamaluddinsyed23@yahoo.com.au