BB rejects Tk 1,439cr compensation demand of BKB, Rakub

The central bank has shot down requests for compensation of Tk 1,439 crore from Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank for incurring losses from disbursing farm loans at the interest rate set by the Bangladesh Bank.

The two state-run specialised banks claimed that they had suffered huge losses between 2013-14 and 2015-16 as the BB had slashed the interest rate on farm loans several times.

Subsequently in April this year, BKB sought Tk 1,318.91 crore in the form of interest subsidy and Rakub Tk 119.63 crore from the finance ministry.

The finance ministry forwarded the proposals from the two banks to the central bank for vetting.

In its response on December 11, the BB termed the two banks' demand as absurd and illogical as the overall weighted average interest rate on lending declined to 10.30 percent in 2016 from 13.61 percent in 2013.

Between 2013 and 2016, the weighted average interest rate on demand loan, construction loan, transport loan, consumer loan, and trade and commerce loan decreased significantly. This prompted the central bank to adjust the rate on farm loans accordingly seeing that the agriculture zone is a priority sector.

The BB had cut the interest rate on farm loans from 13 percent to 11 percent in January 2015 and to 10 percent later in June 2016. The rate was slashed further in January this year to 9 percent. All private and state-owned commercial banks have been disbursing farm loans in line with the Agricultural and Rural Credit Policy and Programme of the central bank and no one was allowed such compensation, the BB letter said.

Besides, the central bank provides different financial support to the two specialised banks every year as they are dedicated to the disbursement of farm loans.

For instance, BKB enjoyed funds amounting to Tk 1,000 crore in fiscal 2013-14 and fiscal 2014-15 from the central bank under its refinance scheme.

The central bank also gives demand loans of about Tk 300 crore to BKB every year so that it can disburse farm loans without any interruptions, the BB letter said.

BB officials told The Daily Star yesterday that the finance ministry rejected the proposals of the two banks following the central bank's opinion.

The two banks have long been saddled with classified loans and capital shortfall as they operated businesses by violating credit rules.

As of September, BKB's non-performing loans stood at Tk 4,316 crore and Rakub's Tk 1,202 crore.

BKB faced a capital shortfall of Tk 7,540 crore at the end of September and Rakub Tk 743 crore, according to the latest BB data. The central bank recently directed BKB and RAKUB to put in efforts to recover the classified loans, the BB officials said.