In August 2014, Salman F Rahman, vice-chairman of Beximco Group, informed the central bank governor in a letter that Beximco Ltd, the group's largest company, was in a liquidity crisis -- dire enough to cause it to collapse.
He blamed the situation on two factors: politically motivated credit restrictions on the group between 2001 and 2008 and repayment of Tk 800 crore in bank loans in the last three years.
Economic disruptions during the prolonged spell of blockades and shutdowns in 2013-14 were also blamed.
The group was beset by huge loans amounting to Tk 5,245 crore to seven banks and required urgent debt restructuring to survive, the letter said.
Accordingly, on January 29, 2015, the Bangladesh Bank issued a new large loan restructuring policy, under which the BB entertained applications from borrowers of Tk 500 crore and above.
Some 11 business groups took the chance and restructured about Tk 15,000 crore of their default loans -- and Beximco Group alone accounted for one-third of the amount.
The borrowers were given a lenient rescheduling benefit of only 1-2 percent down payment instead of the usual 10 percent and the maximum repayment tenure of 12 years.
The large loan restructuring policy, however, put some conditions such as the banks will have to withdraw the facility if any borrower fails to repay two consecutive instalments.
The BB also said banks may sue the borrowers in case of failure to repay the loans.
The subsequent actions of Beximco, which is helmed by the private sector affairs advisor of Awami League chief Sheikh Hasina subsequent actions, show that they did not bother much about the restrictions.
Under the large loan restructuring policy, state-owned Sonali Bank had restructured Tk 1,070 crore of Beximco Ltd's loans for 12 years to 2027 at an interest rate of 10 percent, which was much lower than the 13-14 percent interest rate prevailing then.
After a year's grace period -- which would be from September 2016 -- the borrower was supposed to pay Tk 57.40 crore each quarter to Sonali.
By December 2017 the borrower was obliged to pay six instalments, but Beximco made only two payments and became a defaulter at the end of December last year.
The lender neither withdrew the facility nor sued Beximco, as per the terms of the large loan restructuring policy.
Rather, Sonali took an extraordinary measure to keep Beximco Group out of the default zone, all in the hope of getting back the large amounts it had lent to the business giant.
In the meantime, Beximco Ltd's loan amount had ballooned to Tk 1,262 crore -- and it was rescheduled again in March this year by Sonali.
Not only that, it got the facility without making any down payment, as the BB rules stipulate that a borrower has to pay at least 10 percent of the defaulted loans -- Tk 126 crore in this case -- as down payment to get them rescheduled.
Curiously, the move was termed 'review of restructured loans', not rescheduling of loan, due to which Beximco was able to avoid the required down payment.
And Beximco was allowed to repay using the 'balloon payment' method: it will pay less, mainly the interest amount, at the beginning, with the sum increasing progressively, to include the principal amount as well, towards the end of the loan period.
Bankers say balloon payment is ideal for borrowers who face cash crunch in the short term, but expect their liquidity situation to improve in future.
Records show that it was not the case for Beximco, which has loans amounting to nearly Tk 7,000 crore outstanding in the banking industry as of March, up from Tk 5,245 crore three years earlier.
Under the new arrangement, which got the blessing of the central bank, Beximco has to pay an instalment of Tk 31.56 crore per quarter from January 2018 to December 2019.
After that, the instalments will balloon to Tk 116.64 crore a quarter until June 2021. From then onwards, Beximco will pay Tk 40.19 crore per quarter until June 2027.
But, Beximco failed in the very first hurdle: as of October 18 it has paid only Tk 34.50 crore against the three quarters' due of Tk 94.68 crore, according to data from Sonali.
The missed payment has dragged Beximco into the special mention account zone, the precursor to the default zone.
Still, Sonali believes the fresh benefits will facilitate Beximco Group -- which, incidentally, is the state-run bank's biggest defaulter as of December last year -- to run the business smoothly from its existing difficult situation, said the lender's top official.
Md Obayed Ullah Al Masud, managing director of Sonali, said the client appealed to the bank to review the restructured loans and the bank forwarded it to the BB.
“We did not take the required down payment as it was not a rescheduling of loan per se,” he added.
Serajul Islam, spokesperson of the BB, confirmed to The Daily Star that the central bank gave the green light to the proposal.
Islam, however, declined to comment why the central bank had repeatedly given such an extraordinary support to a client with a notorious default record.
Insiders in Sonali said Beximco Group has to regularise the loan as Salman F Rahman is planning to contest in the upcoming national election. Holding on to his chairmanship in IFIC Bank was another reason. Through its public relations firm, Beximco told The Daily Star that it has reviewed its previous restructured loan and requested balloon payment for repayment.
Beximco did not need to deposit any down payment for the new facility, and the tenure of the rescheduled loan also remains unchanged. “The loan was regular and the present status is also same,” it said, while dismissing any connection to the new repayment arrangement and Salman F Rahman's participation in the upcoming polls.
Experts criticised Sonali and the central bank for allowing Beximco fresh benefits.
“It will encourage others to insist on the same benefits from banks,” said Ahsan H Mansur, executive director of the Policy Research Institute. The move will only help the bank to show a deflated default loans on papers.
“The instance will also infect other banks, so the central bank should think before giving such approvals,” he added.
The central bank breached its own large loan restructuring policy by allowing Beximco to reschedule the default loans, said Khondkar Ibrahim Khaled, a former deputy governor of the BB.