& çâÌæÚUæð´ ·¤è ¥ôÚU Îð¹Ùæ ÁæÚUè ÚU¹ð´ ¥ÍæüÌ ¥ÂÙð ÜÿØ ÂÚU ŠØæÙ ÚU¹ð´Ð ãæÚU Ù ×æÙð´, €UØô´ç·¤ ·¤æ× ·¤ÚUÙð âð ¥æÂ·¤ô ©gðàØ ·¤è Âýæç# ãôÌè ãñ ¥õÚU ÁèßÙ ·¤æ ¹æÜèÂÙ ÎêÚU ãôÌæ ãñÐ ÖÜð ãè ÁèßÙ ×ð´ ç·¤ÌÙè Öè ·¤çÆÙæ§ü €UØô´ Ù ¥æ°, çÁ™ææâæ ¥õÚU ©ˆâæã ÕÙæ° ÚU¹ð´Ð ŠØæÙ ÚU¹ð´, ÜÿØ ã×ðàææ ¥æÂ·Ô¤ Âæâ ãôÌð ãñ´ çÁ‹ãð´ ÂæÙð ·Ô¤ çÜ° ÂýØæâ ¥æÂ ·¤Öè Öè àæéM¤ ·¤ÚU â·¤Ìð ãñ´Ð

Loan defaults and classification: A dimension in complex environment— Part-3

By M Khairul Alam
Despite political and economic turmoil in 1996. some of the commercial banks made recorded earnings but the quality of the earnings rests on many factors. The bank officials, tojjrotect their jobs, reputation, and for other considerations sometimes do not hesitate to undertake huge risks with depositors' and share-holders' money. Part of the blame may also be laid on raising interest rates and other costs of borrowings, incompetent management and lax oversight. But the main lesson of the crisis is the 'moral hazard' and accommoda-tion/entertainment of 'directed loan'.
It has, therefore, become a dire need to adopt a realistic and pragmatic approach to arrest further deterioration of assets and recover the past dues of the banks to recycle and improve sluggish economic activities. The following steps, if adopted may benefit the fractured banking industry:
1) Existing and proposed classification and provisioning standard should be rethought. Given the social, economic and political environment, loans may be reviewed annually and provisioning requirement
against substandard loans should not exceed 10 per cent of its value. General provisioning requirement on unclassified loans should be dropped for . a limited period and this should be applicable to problem banks only.
2) Capital machinery under bank's hypothecation should be treated as eligible security while determining provisioning requirement.
3) Interest held in Suspense Account (unrealised interest amount) should not be accounted for while assessing income tax.
4) Existing tax free loss provisioning limit of 5 per cent should be increased to 10 per cent.
5) Banking industry should remain accountable to Bangladesh Bank only and remain free from outside influences.
6) To speed up loan recovery, commercial courts should be set up and their number should be increased to dispose of the cases quickly.
For that matter the judges should be well-acquainted with modern banking transactions and be absolutely free from other government assignments.
Final disposal of the case should be made within one year. To meet the requirement of the day traditional legal framework should be updated and necessary laws should be enacted accordingly.
7) Bank management should pay special attention to improving the quality of its human resources. Norms and practice of result-oriented-management in place of activ-ity-oriented-management may improve the delivery system of the traditionally managed banks. A result-oriented-man-agement promotes sense of belongingness and sense of participation, and breaks ego based compartmentalised management psyche in the organisation. Recognition and promotion of the real performers, profit related pay, transparency and accountability of the management, automation of bank operation etc. may generate skill and efficiency in the banking sector.
8) The costs of deposits and bank loan should be kept at a rational level. Very high cost of bank loan may sometime lead
to classified advances.
9) In the absence of readily available data and information from borrowers, preparation of a credit proposal takes a long time. Moreover, credit sanctioning and disposal steps are also very lengthy. Borrowers generally have vague idea about banking requirements and also lack seriousness to comply with them. Loan sanctioning steps should be simplified and tor that matter decentralisation of power to some extent with proper accountability is a must.
10) Inter-bank financial commitments and obligations on behalf of borrowers must be honoured and settled forthwith on demand without any reference to the court whatsoever. In the case of any dispute, the matter may be referred to Bangladesh Bank whose decision shall be final and binding on the bank concerned and no court case be entertained there-against.
11) Bangladesh Bank officials shoula visit the large borrowers frequently to assess the overall performance of projects.
12) To arrest and minimise
diversion of fund and to facilitate recovery of classified loans it is necessary to
a) debar floating a company (Private or Public Limited Company) by any person without prior adjustment or regular -isation of his classified advances.
b) debar availability of any credit facility from banks. Insurance Companies, Leasing Companies etc, either in personal or company name without prior adjustment or regular-isation of existing classified loans.
13) To restrain fictitious borrowers. Government should introduce and provide citizenship number or identity card.
14) Bank loans should no more be treated as secret transaction. Since public money is involved, the lending bank may at its option make a public disclosure of individual loan cases.
15) Declaration and disbursement of dividends by banks should be restricted till provisioning and capital adequacy requirement is properly met.
16) Provisioning requirement of Nationalised Commer-
cial Banks should not be met through government bonds. Injection of cash is necessary for effective loan loss provisioning. But tax payers' money should not be utilised for loss financing.
17) Directing the banks on who to lend should not be the spirit particularly in the market economy. The issues and the problems of the customers should be dealt with by the bank concerned Independently without any influence from outside.
Despite the dismal situation in the banking sector there are reasons to believe that much of the classified loans are recoverable through realistic and prudent steps. Since the nature of disease has already been diagnosed, it is now time to apply appropriate medicine. This can bring the sector onto the right track with corrective measures in the coming days.
(Concluded)
The article has been prepared on professional and academic interest and not to undermine any individual or institution. The views are absolutely personal.