The dilemma posed by sick industries
Monday, 11 January 2010
Shamsul Huq Zahid
It is nothing unusual for an industrial unit becoming sick. A single or a variety of reasons may come into play for making an industrial unit sick. Poor project appraisal or bad management or non-availability of required financing or hostile domestic or external environment could be responsible for turning an industrial unit sick.
In Bangladesh, the issue of sick industries has been surfacing intermittently since early eighties. A good number of small and medium industries have become sick over the years. Some of them reported sickness within years after their going into commercial operation and some others turned sick even before launching operation.
The government conducted surveys on sick industries and established a sick industries rehabilitation cell in the ministry of industries. But no tangible solution to the problem could be found until now.
But in the meanwhile, the banks, the public sector banks and development financing institutions in particular, have resorted to legal actions to get back their money from the owners of the sick industrial units. A large part of the classified loans of the state-owned banks and DFIs belongs to the sick industrial units.
In the eighties, the owners of the so-called sick industrial units did not pay much attention to the repeated reminders from the banks to repay the money. But the institution of the money loan courts (artha rin adalats) for speedy recovery of overdue loans from the bank clients created a sense of urgency among the delinquent bank loan defaulters.
The association representing the sick industries started lobbying with the finance ministry to provide some relief to its members. Some relief was provided from time to time. But the problem still persists.
A few weeks back, the leaders of the sick industries association met with Finance Minister AMA Muhith and apprised him of their problems. They blamed largely the banks for making their industries sick and sought remedies from the minister.
But the minister's response was rather lukewarm. He told the association leaders to solve the problems on their own and did not commit any financial remedy.
Last week, the finance minister had to encounter a powerful delegation, headed by the president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI). The delegation submitted a long list of proposals to help the sick industries overcome their long-standing sufferings.
The proposals included settlement of the outstanding debts that the sick industries owe to banks, adjustment of the money the sick industries have paid to the banks with their respective principal amounts and relaxation of an earlier circular on 'cost of fund'.
But the governor of the Bangladesh Bank, who was present at the finance minister's meeting with the FBCCI delegation, took a firm stand on behalf of the banks. He made it clear that any debt-relief measure must ensure compensation payment to the banks. The governor said the state-owned banks being under pressure, financially, could not afford any write-off.
So, the situation as far as debt relief to sick industries is concerned remains unchanged.
However, the finance minister assured the FBCCI delegation that the government would soon come up with a formula to address the longstanding problems being faced by 147 industries identified as sick by a government committee while a decision on other industrial units claiming to be sick would be taken after necessary scrutiny.
Most of the sponsors of the sick industries are first generation entrepreneurs. They did not have the requisite experience and expertise in both starting and running industries. Some of them, allegedly, had ventured in industrial units with an ill motive of diverting funds received from banks as loans, mainly the public sector ones, for other uses.
A section of dishonest bank officials had worked hand in glove with these unscrupulous entrepreneurs. However, a good number of industries turned sick for non-availability of working capital from banks that provided project loans. There are many entrepreneurs who tried their best to secure working loans for their projects. But the banks refused to offer the same.
Management problem has been identified as one of the key reasons for many industries turning sick. However, the owners of sick industries have always shifted the blame on to the banks for their plight and requested the government to persuade the banks to write off their bad debts and extending additional funds to them. But their requests have gone largely unheeded. For, the overdue loans of the sick industries are partly responsible for the poor financial health of the public sector commercial banks and the development financing institutions (DFIs). In addition to lax monitoring, the high-level of political interference in sanctioning loans was largely responsible for accumulation of bad debts in these institutions.
A case in point is the recent merger of the two state-owned DFIs, the Bangladesh Shilpa Rin Sangstha (BSRS) and the Bangladesh Shilpa Bank (BSB) and floatation of a new DFI called the Bangladesh Development Bank Ltd. The now defunct BSRS and BSB had become utterly sick because of the huge burden of overdue loans. These institutions stopped long-term lending from the middle part of the eighties because of non-availability of funds.
Similarly, the state-owned banks are bearing a heavy burden of overdue loans on account of long-term lending to industrial units between 1975 and 1985.
There is no denying that the issue of sick industries is a tricky one. The government does need to protect the interests of both the banks and the sick industrial units.
Except for the industrial units that have turned sick because of the greed of their sponsors, others deserve a sympathetic attention from the government.
It is nothing unusual for an industrial unit becoming sick. A single or a variety of reasons may come into play for making an industrial unit sick. Poor project appraisal or bad management or non-availability of required financing or hostile domestic or external environment could be responsible for turning an industrial unit sick.
In Bangladesh, the issue of sick industries has been surfacing intermittently since early eighties. A good number of small and medium industries have become sick over the years. Some of them reported sickness within years after their going into commercial operation and some others turned sick even before launching operation.
The government conducted surveys on sick industries and established a sick industries rehabilitation cell in the ministry of industries. But no tangible solution to the problem could be found until now.
But in the meanwhile, the banks, the public sector banks and development financing institutions in particular, have resorted to legal actions to get back their money from the owners of the sick industrial units. A large part of the classified loans of the state-owned banks and DFIs belongs to the sick industrial units.
In the eighties, the owners of the so-called sick industrial units did not pay much attention to the repeated reminders from the banks to repay the money. But the institution of the money loan courts (artha rin adalats) for speedy recovery of overdue loans from the bank clients created a sense of urgency among the delinquent bank loan defaulters.
The association representing the sick industries started lobbying with the finance ministry to provide some relief to its members. Some relief was provided from time to time. But the problem still persists.
A few weeks back, the leaders of the sick industries association met with Finance Minister AMA Muhith and apprised him of their problems. They blamed largely the banks for making their industries sick and sought remedies from the minister.
But the minister's response was rather lukewarm. He told the association leaders to solve the problems on their own and did not commit any financial remedy.
Last week, the finance minister had to encounter a powerful delegation, headed by the president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI). The delegation submitted a long list of proposals to help the sick industries overcome their long-standing sufferings.
The proposals included settlement of the outstanding debts that the sick industries owe to banks, adjustment of the money the sick industries have paid to the banks with their respective principal amounts and relaxation of an earlier circular on 'cost of fund'.
But the governor of the Bangladesh Bank, who was present at the finance minister's meeting with the FBCCI delegation, took a firm stand on behalf of the banks. He made it clear that any debt-relief measure must ensure compensation payment to the banks. The governor said the state-owned banks being under pressure, financially, could not afford any write-off.
So, the situation as far as debt relief to sick industries is concerned remains unchanged.
However, the finance minister assured the FBCCI delegation that the government would soon come up with a formula to address the longstanding problems being faced by 147 industries identified as sick by a government committee while a decision on other industrial units claiming to be sick would be taken after necessary scrutiny.
Most of the sponsors of the sick industries are first generation entrepreneurs. They did not have the requisite experience and expertise in both starting and running industries. Some of them, allegedly, had ventured in industrial units with an ill motive of diverting funds received from banks as loans, mainly the public sector ones, for other uses.
A section of dishonest bank officials had worked hand in glove with these unscrupulous entrepreneurs. However, a good number of industries turned sick for non-availability of working capital from banks that provided project loans. There are many entrepreneurs who tried their best to secure working loans for their projects. But the banks refused to offer the same.
Management problem has been identified as one of the key reasons for many industries turning sick. However, the owners of sick industries have always shifted the blame on to the banks for their plight and requested the government to persuade the banks to write off their bad debts and extending additional funds to them. But their requests have gone largely unheeded. For, the overdue loans of the sick industries are partly responsible for the poor financial health of the public sector commercial banks and the development financing institutions (DFIs). In addition to lax monitoring, the high-level of political interference in sanctioning loans was largely responsible for accumulation of bad debts in these institutions.
A case in point is the recent merger of the two state-owned DFIs, the Bangladesh Shilpa Rin Sangstha (BSRS) and the Bangladesh Shilpa Bank (BSB) and floatation of a new DFI called the Bangladesh Development Bank Ltd. The now defunct BSRS and BSB had become utterly sick because of the huge burden of overdue loans. These institutions stopped long-term lending from the middle part of the eighties because of non-availability of funds.
Similarly, the state-owned banks are bearing a heavy burden of overdue loans on account of long-term lending to industrial units between 1975 and 1985.
There is no denying that the issue of sick industries is a tricky one. The government does need to protect the interests of both the banks and the sick industrial units.
Except for the industrial units that have turned sick because of the greed of their sponsors, others deserve a sympathetic attention from the government.