Farmers Bank kept in suspense over capital injection

The Investment Corporation of Bangladesh (ICB) and four other state-owned commercial banks yesterday did not reach consensus on how to inject capital into the ailing Farmers Bank in order to rescue it from its ongoing liquidity crisis.

Bangladesh Bank Governor Fazle Kabir yesterday sat down with the chairmen and managing directors of the five organisations over the matter, but the meeting failed to reach a consensus.

“The ICB and the four state banks want to rescue Farmers Bank,” Mojib Uddin Ahmed, chairman of the ICB, told reporters after the meeting at the BB headquarters.

The state banks are: Sonali, Janata, Agrani and Rupali.

A few months back, the board of Farmers Bank decided to raise Tk 1,100 crore by offloading shares through private placement. But it did not get the expected investors, said a senior executive of the bank.

The government then took it upon itself to inject capital into the bank, which was given the licence on political consideration and is now struggling for survival. The lenders can inject capital into the bank through two ways -- equity or debt, according to Zaid Bakht, chairman of Agrani Bank. “We think that equity is the best way for the banks to inject capital in Farmers Bank as such form will secure the respective lender.”

Agrani will be given a seat at the Farmers Bank board in exchange for equity, Bakht said, adding that another meeting will be held to take a call on the matter.

He, however, said the central bank will have to revise its rules to pull off the move.

Banks are allowed to expend 25 percent of its capital at most to purchase shares.

“We will cross the ceiling if Agrani buys shares worth Tk 100 crore. The central bank will have to revise its rules,” he added.

Md Ataur Rahman Prodhan, managing director of Rupali Bank, said that his bank was still considering how to give capital support to Farmers Bank.

“We will take a decision in the quickest possible time to give relief to Farmers Bank from its ongoing liquidity pressure,” he added. Finance Minister AMA Muhith earlier said that efforts are on way to save Farmers Bank.

“However, it is still under discussions,” he told reporters at his secretariat office last week.

Between September and November 2015, the BB conducted special inspections at three branches of the four-year-old Farmers Bank and found gross violations of banking rules in disbursing loans of about Tk 400 crore.

At a recent inspection, the BB found some of the bank's former directors, including its then Chairman Muhiuddin Khan Alamgir and then Audit Committee Chairman Md Mahabubul Haque Chisty, were allegedly involved in sanctioning  loans taking commission.