Defaulters swallow Tk 800b bank money

FT ONLINE

Lawmakers have identified the legal loopholes as one of the major reasons why bank-loan defaulters go unscathed, in most cases.

The 23rd meeting of the parliamentary standing committee on the ministry of finance, held recently, listed the key reasons behind the spread of the default- culture.

In, at least, 600 cases, the court issued order asking the banks concerned not to show the credit status of the borrowers though the central bank's Credit Information Bureau (CIB) had identified them as defaulters, the meeting was told.

The lawmakers, who attended the meeting, proposed enactment of a new law by removing the weaknesses of the existing ones, according to proceedings of the meeting.

In this context, they suggested formation a committee of experts for drafting an appropriate law.

Experts, however, differed with the lawmakers' proposal and recommended the formation a dedicated bench in the High Court, instead, for settling the loan-default cases.

Speaking at the meeting, committee chairman Abdur Razzak said the defaulters are able to take the advantage of stay orders from the court due to the weaknesses in the relevant laws.

Courts even issue order asking the banks not to show the accused borrowers as 'defaulters', he added.

He also said the top defaulters had been securing loans, mostly from private banks.

"There have discussions on default loans in various forums, but not enough actions to contain it," said Mr Razzak.

The companies are taken over or even liquidated in many countries in case of such defaults, he added.

Mr Razzak proposed enactment an effective law so that the assets of the bank loan defaulters could be confiscated to make payments to the lenders.

He said there is a culture of bailing out the borrowers in difficulty.

But the default loans cannot be recovered as the defaulters resort to various tactics to dodge repayment to banks.

Farhad Hossain, a committee member, said the courts do not respond up to the expected level due to the loopholes in the relevant laws.

Of the top 25 listed defaulters, he said, some 18 defaulted on the repayment of full amount they had borrowed.

Another member Mostafizur Rahman Chowdhury said a borrower of his area obtained loan from Basic Bank by showing collateral of questionable quality.

When the bank went for auction of the same, the bank found that half of his property had already been eroded by the river, he said.

Another member Begum Akhter Jahan wondered how one company could manage loans from 13 banks at a time.

She also alleged that some borrowers use the same collateral to obtain loan from several banks.

One deputy governor of Bangladesh Bank (BB), who attended the meeting on invitation, said that it is a matter of legal enforcement to take over the assets or shut down a defaulting company, which is not happening in Bangladesh.

That's why, there is no instance or practice of takeover of assets of defaulting borrowers, he added.

Replying to a query, the BB representative said the volume of default loans in the banking sector was Tk. 800 billion, according to the latest estimate.

Iliyas Brothers, one of the top listed defaulters, got loans from 13 banks, of which most part of the loans were written off.

Banks are now showing only Tk 1.0 billion in the balance sheet as outstanding, he added.

He also said that money laundering cases have been filed against the defaulting companies.

But the settlement of the cases is hampered due to various reasons, including the stay orders issued by High Court, he noted.

Former adviser to a caretaker government AB Mirza Azizul Islam said, "No new law is needed. If there is any loophole in the existing law/s, it can be amended," he said.

Mr Islam suggested that the central bank, the finance ministry, the office of the attorney general and the law ministry talk to the chief justice regarding the formation of a dedicated bench to dispose of the unsettled cases expeditiously.

When contacted, former deputy governor Khondker Ibrahim Khaled said there were no loopholes in the existing laws that deal with the defaulters.

The Artho Rin Adalot (Money Loan Court) and the Bank Company Act deal with default loans, he added.

"There is everything said in the laws regarding defaulters. There is no problem with the laws, rather the problem lies with their enforcement," he said.

"We demanded a dedicated bench in the court for quick disposal of such cases, which was never implemented," Mr Khaled noted.

He said there is a provision for auctioning and confiscation of the assets of the defaulters in the Bankruptcy Act (2004).

He suggested that the bank can submit prayer for auction of the defaulters' assets beyond the collateral.