Loan default in state-owned banks

The four state-owned banks namely Sonali, Janata, Agrani and Rupali have registered an unprecedented spiral in default loans. The cumulative figure as on December 31, 2012 stood at Tk 21,519 crore representing an increase of 126 percent year-on-year.
The default is largely the outcome of various scams divulged last year to a completely bewildered nation. Both in the scale and machinations, the scandals were unprecedented. Sonali Bank which works as treasury for the government, and supposed to be the most trusted public banking institution, led the way for other state-owned banks in financial wrongdoing.
Ruposhi Bangla Hotel branch of Sonali Bank literally allowed itself to be a conduit for embezzlement of Tk 3,547 crore by five firms including the Hall Mark group. Different variants of irregularities have been detected not just in Sonali Bank but also in Janata, Agrani and Rupali by the central banks inspection team.
The worst part of the episode is whilst much of the plundered money has yet to be recovered and accounted for, a large portion of the loans has been declared as classified. We have known default loans to be either willful or contracted in good faith but somehow turned out to be unrecoverable. But now a default culture of a new type induced by scams has come into play. Altogether loan default has returned with vengeance.
Sonali Bank's managing director has assured of drastic measures being taken to recover loans the result of which will be forthcoming the next year. Out of Sonali Bank's total defaulted loan of Tk 12,050 crore, Tk 632 crore has been recovered in January alone. This is 74 percent of the total recovery made in the whole of 2012.
So long as political patronisation and cronyism in any shape or form continue to afflict the boards of the state-owned banking institution, the latter will not be free of corruption and malpractice. As Khondker Ibrahim Khaled has pointed out, 'loan sanctioning upon political persuation, dishonesty of bank officials caused the spike in default loans'. Quite clearly, the central bank's supervisory role will have to be strengthened vis-a-vis state sector banks.