Bangladesh Bank has tightened the screw on the four errant state banks this year, lowering their loan growth ceiling and raising the punitive measures for non-compliance to performance agreements.
The move comes after the International Monetary Fund expressed concern about the below-par improvement in performance in the four banks, an important condition for the Extended Credit Facility (ECF) loan.
The IMF's latest mission, which came early this month, partly blamed the central bank, saying it did not take actions for breach of conditions in the memorandum of understanding, signed with the four banks last year with the singular view of improving their financial health.
Subsequently, in the new memorandum of understanding finalised last week, the central bank has set the loan growth ceiling for Sonali and Janata at 6 percent and 10 percent respectively, down from 8 percent and 12 percent in 2013.
While Agrani's loan growth ceiling stayed the same as last year at 10 percent, Rupali's increased to 12 percent from 10 percent in 2013.
It has also decided to impose strong sanctions for non-compliance to areas of MoU which are directly under the banks' control such as loan growth ceiling and single borrower exposure limit.
For instance, if any bank breaches the credit growth ceiling, BB will order it to deposit as unremunerated reserves the entire excess amount lent over the credit limit.
The central bank also committed to the IMF that the banks would adopt several policies to improve their operations, develop credit and risk management and strengthen internal control and compliance.
BB will assess in December whether the policies are working effectively or not, and it will continuously monitor loan recovery practices and explore alternative ways of recovering bad loans.
However, most of the banks have appealed to the central bank to raise the credit growth ceiling as it will ensure profitability for them. Pradip Kumar Dutta, managing director of Sonali Bank, told The Daily Star that they have requested the central bank to increase their growth ceiling to 10 percent.
Rupali, too, requested for its loan growth ceiling to be increased, although it was the only bank among the four to see its ceiling be raised this year from 2013's.
M Farid Uddin, managing director of Rupali Bank, said the bank's deposit growth is 30 percent and if the loan growth ceiling set by the central bank is enforced, it would be very difficult to make any profit.
Farid Uddin also said they would have to make Tk 300 crore in profit a year to make up for their accumulated loss.
A BB official said if the banks can realise their classified loans the scope for increasing loan will widen.
Last year, the loan growth of all state banks, except Rupali, was negative, on the back of the government's repayment of Tk 5,900 crore to Sonali, Janata and Agrani for Bangladesh Petroleum Corporation's loans.