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Why the endless bailouts of state-owned banks?
I ' HE government has just I announced a fresh
JL bailout package to the tune of Tk 20 billion (approximately USD 250 million) so that they may meet some of their capital shortfalls. The state-owned banks (SoBs)
that are getting their troubled coffers replenished are Sonali Bank, Janata Bank, Rupali Bank, Bangladesh Krishi Bank, Rajshahi Krishi Unnayan Bank, and Grameen Bank.
The bailout package is 10 percent of the total capital shortfall of these banks, which is a pittance to the bailout amount demanded by these banks which was to the tune of Tk 203.98 billion! While the package is a mere fraction of what was demanded, the fact remains that the bailout is being given without initiating any meaningful reforms in these graft-ridden banks.
When we look at recent media reports about one-third of the SoBs being held hostage to 20 defaulted borrowers, and without any concrete steps to take them to task for loan recovery, we begin to comprehend how bad the situation is in these SoBs. Indeed, going by historical data, the government has been bailing out many, if not most, of these banks over the last four years with billions of taka which could have been spent on more productive sectors of the economy. The idea of “recapitalisation" took on a whole different meaning since the beginning of the government's first tenure.
Before the latest bailout, Tk 14,505 crore had been handed out as "bailout" money for these ailing institutions since 2009. As pointed out recently by Dr Ahsan H Mansur, executive director of independent think-tank Policy Research Institute, banks have been asking for money again and again because the money has gone down the drain, or to put it in another fashion, in the pockets of corrupt and politically connected people.
Although the government appears to have attempted to rein in what has fast developed into a bottomless basket case scenario, the Tk 20 billion allocation is being spent to meet Basel-Ill requirements. It is astonishing to find indignation coming from bank officials of troubled banks that they are not getting what they have been demanding. The national exchequer is not a lottery fund for hopeless financial institutions. If we look at government data, we find that the government has injected Tk 106.22 billion into the coffers of SoBs and other financial institutions, including privately owned IFIC bank over a five-year period (2012-2017).
Why are we allowing the continuation of a failed system of bank governance in these institutions? Who are we serving by throwing away public money? Despite multi-billion taka scams that have rocked the financial base of this country over the last so many
years, the government has failed to check corrupt practices in SoBs. It has failed to jail bankers implicated in corrupt practices. No, we have done none of that. What we have done instead is offer more of the same; more money to be plundered with impunity. Not just any public fund but taxpayers' hard-earned money!
Indeed, from what has been published in this paper, taxpayers' money—thousands of crores of it—has been diverted from development expenditure to pay for these handouts to SoBs. Since its tax money paying for the rich-and-infamous to loot our banks, it makes perfect sense for the government to keep
squeezing us of our earnings through innovative ways, either through revamped VAT or excise duty policies on bank deposits.
There have been attempts by some to make a comparison with the India experience of recapitalising its banks to the tune of USD 14 billion under the Indrodhanush Recapitalisation Scheme as an excuse for our bailout. The circumstances that led to Indian banks running into bad Ioans had everything to do with huge exposure to financing mega infrastructure projects that got delayed by years of bureaucratic red tape. Our situation is vastly different. Our SoBs have not been making sensible investments into projects. No, we have been throwing precious billions away to
finance dubious projects of dubious business entities.
Hence, the attempt to compare our case with that of India is flawed to begin with. Since we are on the subject, readers may be interested to learn that the Indrodhanush scheme did not come free to the banks; it entailed a series of reforms that the Indian banks had to initiate in their respective institutions. These included the improvement of due diligence and making provisions for specialised monitoring for loans above Rs 2.5 billion that allowed for bad loans to accrue.
What exactly have we done in this regard? We have practically no accountability, no liability and no transparency in SoBs. Our skepticism about the
"recapitalisation" scheme launched by the government to bail out banks stems from these failures by our policymakers, to do what needs to be done, to make these sick banks healthy again. As things stand now, there will be no end to these bailouts. We will be throwing away public money every fiscal so that it may be siphoned off by new groups of defaulters. Fraudulent lending to dubious borrowers has become the name of the game. All that is required is the right political linkages because SoBs have politically appointed board members who wield considerable influence over loan sanctioning.
Syed Mansur Hashim Is Assistant Editor, The Daily Star.