Bonds not to be issued against banks’ capital shortfall

Finance Division has rejected the proposal of issuing bonds worth Tk4,100 crore for three state-run banks including BASIC Bank to meet their capital shortfalls. Other two banks, Janata and Rupali, sought subordinated bond of Tk1,000 crore and Tk500 crore respectively for sever-year period. However, Finance Division didn’t say anything about issuing of bond of Tk22 lakh for Grameen Bank. The decisions came at a meeting on capital shortfalls of seven state-run banks. Finance Minister AMA Muhith presided over the meeting. Officials who attending the meeting said the government liabilities would increase if they met the banks’ capital shortfalls from bonds. An official said Bangladesh Bank has been asked to prepare a report on BASIC Bank that how the bank utilised Tk2,300 crore in last two and a half years to meet its capital shortfall. BASIC Bank was not able to reduce the non-performing loans and its liquidity fund reached Tk1,500 crore. A Finance Division official said most of funds were utilised to buy government bonds. He said the BASIC authorities didn’t try to give loans to the “real businessmen” for earning more profit. At the meeting, BASIC Bank representative revealed the provision requirement of the bank and hoped to halve the figure to Tk2,100 crore over the next five years. The provisioning requirement of the bank as of December 2014 was Tk4,297crore, which came down to Tk3,858 crore in December 2015. The government injected fund worth Tk1,100 crore in 2014 and Tk1,200 crore in January 2016 from its exchequer to solve BASIC’s capital shortfall despite criticism from economists. The bank ran out of capital after the bank’s previous board, led by controversial chairman Sheikh Abdul Hye Bacchu, provided loans to fictitious borrowers between 2010 and 2014. Finance Division mentioned four options to meet the banks’ capital shortfalls. In the current fiscal year, the budget allocation is low considering the amount of banks’ capital shortfalls, said officials Former Caretaker Government Finance Adviser AB Mirza Azizul Islam said: “It seems that the public money is being put in black hole in the name of recapitalisation of the state-run banks repeatedly.” He said the state banks should be strict about their loan defaulters to reduce the capital shortfalls. Mirza Azizul Islam said nothing will work for the state banks in meeting capital shortfalls unless they reduce the NPL. Finance Minister AMA Muhith said this week that the capital shortfall of the scam-hit BASIC Bank was needed to be solved and its problems would be dealt with “separately.”