Non-performing loans (NPL) have become a worrisome issue for Bangladesh. According to newspaper reports, NPLs have already crossed taka one lakh crore. The huge amount of NPL will accelerate the operating costs of the banks, which will increase the lending rates. A soaring NPL may also exacerbate the liquidity crisis and banks’ ability to pay the money to its depositors, which can potentially trigger the banks’ reputational risk.
The banking sector of Bangladesh has expanded over the years in terms of number of formal institutions, higher number of financing instruments and bigger volumes of assets. However, the sector has been facing a number of serious challenges due to rising of NPL, lack of corporate governance and increasing capital shortfall.
Banks are usually persuading debt recovery through customer negotiation and if negotiation fails it starts legal procedures to recover the debt. Between January 1, 2018 to December 31, 2018, around 35,69,750 cases were pending in different courts including the Supreme Court. Among the cases, a significant amount is filed by the banks under the Money Loan Court Act 2003, the Negotiable Instrument Act 1881 and the Penal Code 1860. To accommodate this huge number of cases, the numbers of courts and judges are found to be insufficient. Many courts having poor infrastructural facilities. They are struggling for shortage of manpower, IT facility, record keeping, storage and general support. Many judges and court personnel are lacking the essence of public debt recovery.
The other challenge banks face after filing the case is in relation to the service of summons, as the persons responsible for the service are very reluctant to serve summons to the accused rather sometimes are interested to negotiate with the accused for not serving the summons. As per Rules & Order 93 of Civil Proceedings, the summon surveyor will be responsible for not serving the summons on time. However, we do not find any active role from the judge in-charge, rather courts are ordering for paper publication, which involves very high and sometime disproportionate costs for the banks.
Sometimes defaulters also file appeal case/miscellaneous case/ revision case/writ before the High Court for different reasons to divert the spirit of the cases. In the Supreme Court, limited number of benches are available for hearing the bank related cases, which also creates delay in the proceedings. Thus, throughout the legal proceeding, Banks not only face delay in receiving judgment but also incur huge costs to operate the cases.
Bankers, customers, regulators, government, judiciary, and lawyers should work collectively and cohesively to overcome the challenges, to protect public money and to keep NPL at the desired level. Otherwise, the banking sector and our economy will have to pay the price at higher cost.
The author is the head of Legal and Recovery Division, Brac Bank Limited.
