RAKUB caught by lending to cold storages

State-owned specialised bank Rajshahi Krishi Unnayan Bank (RAKUB) got caught in the trap after lending to the owners of cold storages and auto rice mills, not to the marginal farmers, and eventually 21 per cent of the bank’s total loan outstanding turned into default loans. On top of this, the bank collected deposits at a higher interest rate year after year while maintaining the lending rates fixed by the government, thus, incurring Tk 15.82 billion in loss over the past five years.

Now Bangladesh Bank, acting on the government’s behalf, has decided to merge RAKUB with another state-owned specialised bank Bangladesh Krishi Bank (BKB), which itself is burdened with a hefty amount of defaulted loans – Tk 39.80 billion or 12 per cent of its total loan outstanding.

RAKUB was established with the branches of BKB in the Rajshahi division at the time in 1987 to finance the agriculture sector to develop the 16 agriculture-dominated districts in the northern region. RAKUB operates a total of 383 branches, and 333 of them are located in rural areas across the northern region. No other bank has spread its network to such rural areas in the country.

At the meeting on the merger between RAKUB and BKB at the beginning of March, Bangladesh Bank government Abdur Rauf Taluker directed the officials of both banks to maintain a ‘dead silence’ to the media. So, RAKUB authorities did not comment officially on the matter.

A senior official of the bank told Prothom Alo on condition of anonymity the bank provided loans to cold storage and auto rice mills in the face of pressure from the regional political leaders, and those loans could be recovered now. Besides, a shortage of competent officials and skilled manpower disrupts banking. However, the financing of RAKUB is the catalyst for success in the food production, livestock and fisheries sectors of the northern region. Had the bank lent the marginal level, production of farmers would have been disrupted, the official added.

21pc defaulted loan

Headquartered in Rajshahi, the bank operates in 16 districts with 18 zonal offices, 2,500 officials and 1,293 employees across 383 branches. Its authorised capital stands at Tk 10 billion and paid-up capital at 8.24 billion. As of December 2023, the banks’ loan outstanding amounted to Tk 71.78 billion, including Tk 14.51 billion, which is 21 per cent of total loans.

RAKUB prepares its financial statement as per the fiscal year and the bank is yet to finalise the financial statement in the 2022-23 fiscal. As per the financial statement for the 2021-22 fiscal, the amount of deposits stood at Tk 67.73 billion as of June 2022, and the bank’s cost of funds was 8.19 per cent at the time.

A review of the bank documents showed Ankur Seed and Himagar Limited in Nilphamari topped the list of loan defaulters with Tk 470 million in debt, followed by the Shah Islaim Gazi (Rh) Private Limited (Tk 420 million) in Rangpur and Ashraf Seed Store ( Tk 410 million) in Sundarganj.

Other top defaulters are Nigar Cold Storage of Durgapur in Rajshahi (Tk 310 million), Al Farooq Bags of Bogra (Tk 260 million), Agro Art Industries of Sherpur (Tk 250 million), Shah Amanat Specialised Cold Storage of Rangpur (Tk 240 million), Fulbari Cold Storage (Tk 200 million), GSA Auto Bricks of Taraganj in Rangpur (Tk 190 million), Prashika Human Development Center (Tk 150 million), Eknij Field Mills in Sherpur ( Tk 120 million) to and Mahmud Hossain Cold Storage in Naogaon (Tk 70 million). The bank owes a total of Tk 2.74 billion to the top 20 defaulters.

Tk 15.82-million loss in 5 years

Currently, RAKUB pays slightly less amount of money to depositors than it earns from interest, but incurs a big loss coupled with maintaining provisions against loan and operating costs at year-end. The banks faced Tk 430 million in loss in the 2018-19 fiscal, Tk 6.14 billion in the 2019-20 fiscal, Tk 4.84 billion in the 2020-21 fiscal and Tk 2.45 billion in the 2021-22 fiscal and Tk 1.96 billion, as per the temporary account, in the 2022-23 fiscal. The bank also faces a huge deficit in capital due to the loss.

RAKUB is collecting deposits at higher interest, but lending at a rate set by the government. The bank’s interest rate for agricultural and rural loans is at 12.55 per cent despite the bank interest rate being as high as 13.55 per cent. That means RAKUB earns less from interest.

People concerned said the change was necessary to the operating model of RAKUB and problems may go away if the government subsidises farmers’ loan interest instead of providing capital repeatedly, and that will strengthen its financial base and increase transparency.

Alauddin A Mazid served the RAKUB as a managing director. He was also chairman of BKB and BASIC Bank. He told Prothom Alo the merger of the two banks would bear no fruit rather it may attract reaction from the northern region. Bank branches that sit idle can be handed over to NGOs, who will finance agriculture through these branches, and that, will benefit farmers and banks can also make profits from it, he added.

Alauddin A Mazid said the government must decide whether these specialised banks will operate commercially or lend to farmers at low interest, and the government must subsidise the latter. Otherwise, it is difficult to make profits from these two banks, and also both banks must operate professionally.