Loan defaulters are apparently getting the regulator’s impunity once again. Bangladesh Bank said in a circular that sister companies of business groups will be eligible for new loans until the parent company is classified as willful defaulters, and the Bangladesh Bank will finalise the loan sanctions considering all these matters.
The loan defaulters may not be cheering in public, but their smiling faces can easily be imagined because the path to getting loans has finally opened for the loan defaulters. The most surprising was how the entire process was executed. The Bank Company Act was changed to facilitate loan defaulters getting clearance to secure loans. When this act was passed in parliament a ruling party lawmaker proposed an additional amendment and that lawmaker now holds the portfolio of a state minister in the current cabinet.
It is very common to propose amendments to the law in parliament. However, the proposal of Ahsanul Islam on the amendment to the Bank Company Act was no common event. Just a month earlier, several bank directors sent a written proposal to the high level of the government requesting the latter to allow sister companies of any business group, which is classified as defaulted, to secure loans. The proposal states that a person or company that is not defaulted willfully or becomes defaulted rationally should not be classified as defaulted. When bank directors submitted this proposal, the draft of the Bank Company Amendment Bill contained no such provision. The parliamentary standing committee on finance ministry gave it opinion in parliament, and that did not include the bank directors’ proposal either. Later, the bill was passed incorporating the amendment proposed by Ahsanul Islam.
Bangladesh Bank is now allowing the subsidiary firms of the defaulted business group to secure new loans. They, however, directed the banks to follow a set of terms and conditions and kept the final approval for loan sanction in their hands.
But, experts are getting answers to the question of how the willful loan defaulters will be identified. Theoretically, a willful loan defaulter is one who does not repay loans despite being able to pay. Mustafa K Mujeri, former chief economist of Bangladesh Bank, told Prothom Alo it is a difficult task to identify a willful loan defaulter, but there is another issue that is concerning.
According to him, a powerful quarter managed to change the law, now they will bring out evidence that they are not willful defaulters, and then they will take out bank money. Mustafa K Mujeri is seeing the reflection of that certain quarter.
There have long been persisting problems with defaulted loans in Bangladesh, but the situation reached a dangerous level in the last one and a half decades. When Awami League came to power in 2009 the amount of defaulted loans stood at a little less than Tk 225 billion. As of December 2023, defaulted loans rose to about 1.5 trillion, and that means the amount of defaulted loans increased by more than sixfold in the past 15 years.
However, this is the tip of the iceberg. The distressed assets stand at Tk 3 trillion in the banking sector. The banking sector of the country reached this situation by sparing loan defaulters again and again, and by walking on the path of cronyism policy and protection of group interest.
India and Pakistan also tried to nab the willful loan defaulters, but it did not work well. Instated, 35 loan defaulters in India left the country in three years from 2017 to 2020. India banks owed Rs 920 billion to the top 50 willful loan defaulters at the beginning of 2023. Indian banks wrote off loans amounting to Rs 10 trillion of lona in the past 10 years with Rs 1.75 trillion loans being written off in the 2021-22 fiscal alone. Indian central bank Reserve Bank of India then came down hard on the borrowers and asked banks to identify the wilful loan defaulters, as well as to scrutinise all accounts of the borrowers having a loan over Rs 2.5 million once the client stops repayment.
Leaders of Bangladesh love to give examples of Singapore on different occasions and they take pride in saying the country is becoming Singapore. In Singapore, failure to pay a loan may result in imprisonment for seven years or a fine of 150,000 Singaporean dollars or both. Authorities in the United Arab Emirates can confiscate the entire wealth of the borrower in a bid to recover the loans. If the borrower cannot give a logical explanation for the failure of loan repayment, the door to the court also narrows.
Last month, Bangladesh Bank, however, formulated a policy on identifying the willful loan defaulters and asked the banks to form special units within 9 April to assign the willful loan defaulters. But people least expect that the group that can change the Bank Company Act at their will will be booked by law. By providing new privileges for loan defaulters, Bangladesh Bank is apparently taking a step backwards.