BB's welcome steps

Bangladesh Bank governor Dr Fakhruddin Ahmed has announced measures to tidy up the loan portfolio mess besetting commercial banks. Three things are envisaged: writing off of bad debts; a provision for legally chasing defaulters even after the write-off; and a new loan rescheduling guideline. There is nothing novel about jettisoning bad loans; rather it's a standard practice in the banking world. Debts that eluded recovery for over five years are not only bad they are even pernicious. They get reflected over the balance sheets of the banks year after year giving a false clean chit of health, even an image of profitability to them. The decision, therefore, to ease off such debts has been a step in the right direction. Overall, a big chunk of the operational time of banks hitherto devoted to paper-work on such loans will be freed up.

However, the central bank need to send out a clear message to the commercial banks that it's basically a one-off waiver of that magnitude. We support the BB's write-off provision only as an exceptional step aimed to streamline the messy fund management.

'Hate the sin, not the sinner' -- may be a commendable counsel in human affairs but insofar as the massive bank default goes, such a charitable dispensation of pardon can be suicidal for the economy.

The loan defaulters need to be placed in two categories: the wilful shirkers and those who failed to repay under the weight of genuine circumstances. There is the high profile category who have clearly identifiable assets, who splurge at home and abroad and do everything in style except repaying their debts. Yet they proverbially rise with each 'crisis'.

Why the bad loans -- is a question that needs to be addressed in the first place. Political influence peddling has been one of the major causes for the default culture. The ruling party stalwarts often weighed with the NCB managements or the directors of private banks who either had a party label or complied with requests from party high-ups to ingratiate themselves to the latter.

Added to this was the intrusive trade unionism and bank officials being in league with dubious loan applicants which were reflective of a deliberate eschewal of professionalism in the banks. Once given, there is hardly any monitoring of loans either. All of that has to go before we pile up another bad debts portfolio.

The new guideline for loan rescheduling is a fairly reasonable one. The earlier proposal to reschedule loans time and again by paying only 10 per cent of the dues on cash has been rejected. A third timer would now have to pay 50 per cent of the defaulted amount up-front to be eligible for re-scheduling his loan. This sounds reasonable. But isn't a policy as good as its implementation?