The bank will be able to pay this in installments, once every six months until 2025
Padma Bank, formerly known as Farmers Bank, has received five years, until 2025, to pay Tk55 crore penalties levied for the failure to maintain their cash reserve ratio (CRR) from 2017 to 2019.
The board of directors of the Bangladesh Bank on April 12 decided to give the timeframe for the bank to pay the penalty.
“The bank will be able to pay this in installments, once every six months until 2025,” said Bangladesh Bank Executive Director and Spokesperson Md Serajul Islam on Sunday.
Before the move, the Bangladesh Bank on March 31 waived Tk89 crore in penalty for the bank, which was levied for failure to maintain the statutory liquidity ratio (SLR).
The BB on that day issued a gazette notification, exempting Padma Bank from complying with section 33 of the Bank Company Act, 1991 under which maintaining SLR is a must for all the banks and any failure to maintain the SLR is a punishable offence.
The central bank granted the exemption to Padma Bank after receiving opinions from the finance ministry.
In November 2019, Padma Bank had applied for waiving Tk144 crore levied for failure to maintain the cash reserve ratio (CRR) and the statutory liquidity ratio (SLR) in 2017 and 2019.
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% and SLR 13%.
Failure to maintain the CRR elicits a fine of 5% per day on the deficit amount. In the case of SLR, the penalty is 7.75% (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.
Subsequently, the BB imposed fines, which the bank failed to pay as well, he said.
The fine alone with the interest now stood at Tk144 crore.
Of the amount, about Tk89 crore pertains to SLR shortfall and Tk55 crore to CRR shortfall.
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.
The Finance Ministry then on March 18 sent its positive opinion to the BB to waive Tk89 crore in penalty levied for failure to maintain the SLR, the BB official said.
However, the ministry did not give any comment on the Tk55 crore penalty, which was levied for failure to maintain the CRR.
The bank will have to pay the fine of Tk55 crore because the ministry did not give any comment on it, BB official said.
While contacted Padma Bank Managing Director and CEO Md Ehsan Khasru on Monday said he would speak to this correspondent soon on the matter, but did not do so, as of filing this report.
But last month, he had said: “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,”
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% stake in the bank for Tk715 crore.