SoCBs and the mounting default loans

The state-owned commercial banks (SoCBs), better known for their default loans, have once again made news -- this time for their appalling failure to recover even the minimum of such loans, as required by the central bank. The four SoCBs --  Sonali, Janata, Agrani and Rupali --  recovered  reportedly a little over 36 per cent of their annual loan recovery target. Against the aggregate annual target for loan recovery in the current fiscal at Tk 6.23 billion, such banks succeeded to recover only Tk 2.26 billion so far from their top-20 loan defaulters. As the practice goes, it is the central bank that determines the annual loan recovery target from the top-20 loan defaulters.
As a result of the mounting default loans, capital deficit of the SOBs is increasing. Over the past six years, among the state-owned four banks, default loans of Janata Bank have gone up by 85 per cent, of Sonali Bank by 65 per cent, of Agrani Bank by 40 per cent and of Rupali Bank by 17 per cent. The total amount of default loans of these four banks combined is reportedly around Tk 190.00 billion. Besides, loans amounting to Tk 150.00 billion of these four banks have been written off. Coupled with the default loans, the much talked-about financial scams in recent times have also taken a serious toll on the very survival of these banks. Over the past six years, the amount of fund misappropriated from these banks, according to reports in the media, stands at an alarming aggregate of Tk 110.00 billion. A World Bank (WB) report, prepared sometime ago, says that Bangladesh's banking sector turned from bad too worse from 2009.
The central bank, despite its efforts to contain default loans at the four SoCBs, has not yet been able to devise effective mechanism to do so. One of the reasons, and a potentially disturbing one, is that many loan defaulters resort to filing writ petitions with courts to either delay the recovery or  foil the process altogether. The phenomenon, though not new, has become a regular practice, especially when it comes to recovering big amounts from the defaulters. Needless to say, such defaulters are big too. Banks, as is alleged sometimes, do not take adequate steps in defending their positions by way of engaging renowned lawyers.
Much of the deplorable state of the SoCBs is also attributed to the alleged protection of partisan interests of the governments in power by these banks. While the government-appointed boards shield them from the control of the central bank, political influence does not allow enough freedom for the bank managements to prevail upon the loan applicants in terms of providing or securing sufficient security or collaterals. This newspaper has been harping for quite sometime on the issue of diarchy -- with two different patterns of governance for the private banks and the SoCBs that, experts believe, are largely instrumental in rendering things worse, as they are, so far as default loans and non-recovery of such ones are concerned. One can expect discipline and coherence in the policies of the SoCBs only when this dual policy is done away with.