BB to waive Tk 89cr of its penalty
The government is doing all it can to salvage the scam-hit Padma Bank, formerly known as Farmers Bank.
After getting five state-run financial organisations to snap up stakes in the bank to prop up its feeble liquidity position, the Bangladesh Bank is set to waive Tk 89 crore penalty of Padma Bank levied for failure to maintain the statutory liquidity ratio (SLR) in 2017 and 2018.
In November 2019, Padma Bank had applied for waiving Tk 144 crore levied for failure to maintain the cash reserve ratio (CRR) and the statutory liquidity ratio (SLR) in 2017 and 2018.
CRR is the share of a bank’s total deposit that must be maintained with the BB in the form of liquid cash, while SLR is the minimum percentage of deposits that a bank has to maintain in form of gold, cash or other approved securities.
The CRR then was 5.5 per cent and SLR 13 per cent.
Failure to maintain the CRR elicits a fine of 5 per cent per day on the deficit amount. In the case of SLR, the penalty is 7.75 per cent (current special repo rate) on the deficit, as per BB’s rules.
Owing to an extreme liquidity crisis, Padma Bank was unable to maintain the two, said a top official of the BB seeking anonymity as he is not authorised to speak with media.
Subsequently, the BB imposed fines, which the bank failed to pay as well, he said.
The fine alone with the interest now stands at Tk 144 crore.
In December last year, the BB took the issue to its board meeting and then forwarded it to the finance ministry for an opinion before taking any decision.
Then the finance ministry on March 18 sent its positive opinion to the BB to waive Tk 89 crore in penalty levied for failure to maintain the SLR, the BB official said.
Of the total amount, about Tk 89 crore pertains to SLR shortfall and Tk 55 crore to CRR shortfall.
The penalty is being waived as per the power of section 121 of the Bank Company (amendment) Act, 2013 after the green signal from the finance ministry.
The ministry did not give any comment on the penalty of Tk 55 crore, which was levied for failure to maintain the CRR.
The bank will have to pay the fine of Tk 55 crore because the ministry did not give any comment on it, BB official said.
The BB will send a letter to the managing director of Padma Bank by next week in this regard, he added.
“We are not responsible for the large sum of fines imposed when the Farmers Bank was involved in various problems, including liquidity crisis. We are now Padma Bank. The bank has changed a lot,” Md. Ehsan Khasru, managing director and chief executive officer of Padma Bank, told Dhaka Tribune.
For instance, the government is now a shareholder of the bank by way of five state-run financial institutions, he said.
“The huge amount of fines and the accompanying interest should be waived as it is an obstacle for us in moving forward,” Khasru added.
With the view to sweeping the gross irregularities and loan scams under the carpet and getting an image makeover, Farmers Bank was renamed Padma Bank in February of 2019.
The bank, which was established in 2013, became a hotbed for financial irregularities in less than three years of operation. More than Tk3,500 crore was siphoned out from the bank, according to the BB.
Allegations of corruption against Muhiuddin Khan Alamgir and Md Mahabubul Haque Chisty, the then board chairman and chairman of the audit committee respectively, became deafening and depositors, which included government agencies, started pulling out money.
The two were forced to resign in November 2017, and the government stepped in to rescue the bank in 2018.
The state-owned financial institution Investment Corporation of Bangladesh, Sonali Bank, Janata Bank, Agrani Bank and Rupali Bank bought 60 per cent stakes in the bank for Tk 715 crore.
At the end of December last year, the bank’s default loans stood at Tk 3,454.6 crore, which is 61.6 per cent of its total disbursed loans.
It also has a capital shortfall of Tk 309.99 crore, according to the central bank’s latest data.