SCBs and their errant owner

Shamsul Huq Zahid The state-owned commercial banks (SCBs), the corporatisation of which was merely an eyewash, are, according to media reports, experiencing liquidity shortage. The SCB that were major providers of funds to the call money market even some months back are now borrowing heavily from the same market to keep its lending operations going. The central bank particularly worried about the situation, reportedly, has recently sent a letter to the Ministry of Finance (MoF) explaining the overall developments in the SCBs. Analysing the present situation in the SCBs, the central bank maintains that the growth of credit of these banks is much higher than that of their deposit. The credit-deposit growth scenario in the SCBs is opposite to what is prevailing in the overall banking sector. Their deposit has grown at a rate of 9.0 per cent as against 15 per cent of the overall banking sector in recent months. Similarly, the growth of credit by these banks is estimated at 15 per cent compared to 9.0 per cent growth of the banking system. Besides, there are other developments including more-than-usual concentration of credit in some particular sectors that have created a lot of concern among the board of directors of the central bank. But all the central bank's worries are meant for a recipient which is largely responsible for the SCBs' current woes. It is none but the MoF that forces the SCBs to lend to the state-owned entities that have little repayment capacity. In fact, the MoF, as the public perception is, considers the SCBs as its fiefdom. It interferes in their management matters, influences loan decisions very often and appoints individuals to the boards of directors, without considering their professional background. All these together encourage other acts of indiscipline and irregularities on the part of officials and employees of these banks. The performance of the SCBs, as in the case of other government-owned entities, has never been up to the expected level because of their built-in weaknesses. Yet they, controlling a major part of both deposit and credit in the banking sector, were the major players in the sector until the early 1990s. But their decay had set in with the emergence of efficiently managed and, technologically, better equipped domestic private sector and foreign banks. There were haphazard attempts to make the SCBs competitive. But with the MoF keeping the overall control in its hand, those hardly have paid any dividend. Had the SCBs been allowed to operate freely with best management teams in place, they, with their vast network across the country, could have performed better. It will not be out of place to mention here the improvement was noticed in the performance of at least three SCBs, the Sonali, the Janata and the Agrani in the first half of the last decade. The government interference, of course, was there but to a lesser degree. But things should have been better now as all these SCBs have undergone a structural transformation, at least theoretically, after their conversion into public limited companies (PLCs) -- a move meant to give operational freedom to their respective management to run their institutions efficiently. Instead of this, the situation there has turned worse. The SCBs have both good and bad managers. Over the years, the private banks have picked the good ones while in service or immediately after retirement offering their better compensation packages and other benefits. They are delivering results much up to the expectation of the owners of the banks. But the compensation packages and other benefits for the officers and employees of the SCBs remain still tagged to national pay-scales. That the SCBs are not managed well is evident from the substantial withdrawal of deposits by their clients in recent months. Why would people keep their money with SCBs that offer unattractive interest rates? The average interest rate offered by SCBs on saving deposit is 5.0 per cent and that on fixed deposit is 8.5 per cent. Many private banks offer 8.0 per cent interest on savings deposits and more than 12 per cent on fixed deposits. Despite having a spread between the deposit and lending rates higher than that of the private commercial banks, the SCBs are not well-off, mainly because of poor management of their human as well as financial resources. It is not that the SCBs are facing any impending danger. But if the ongoing developments are allowed to continue for long with the banking sector regulator not being able to do anything of substantive nature to turn the tide and the government maintaining its present stance, the situation might soon turn critical for the SCBs. Actually, the onus now lies largely with the government to help remove the stumbling blocks to better performance by the SCBs. zahidmar10@gmail.com