Janata Bank has waived interest of more than Tk30 crore in the last two years against some loans, violating the interest waiver rules.

The board of directors of the state-owned bank is waiving the interest on loans at a time while the government trying to recover it’s financial health by injecting more public money as capital support.

The government provided the bank with a fresh fund of Tk814 crore in the year 2013 as the bank was suffering from capital shortfall of Tk1,620 crore.

Moreover, Bangladesh Bank investigation has recently identified the provision shortfall of Tk318 crore during last year.   

The board recently decided to waive interest of over Tk10 crore against the loan of BI Industry, debiting income account, which is subject to Bangladesh Bank’s approval, according to the central bank source.

Though Bangladesh Bank has denied extending its consent on this approval as, what it said, the board has the authority to take its own decision in this regard in line with the interest waiver policy of the finance ministry.

According to the interest waiver policy, the board of the bank could waive interest on loan subject to confirm the recovering cost of the fund. The policy does not allow any bank to waive interest on loans deducting income at any means.

Earlier, the bank had waived the interest of Tk8.45 crore against the loan of Goodman Pharmaceuticals in the year 2013 and also interest of Tk12.48 crore against the loan of Dhaka Hatchery.

The interest amount that has already been charged was waived debiting income, which was against the interest waiver policy of the finance ministry.

Meanwhile, Comptroller and Auditor General (CAG) has also raised objection over the move to waive the interest but the bank did not pay heed to it. 

In an objection report over the interest waiver issue of Dhaka Hatchery, CAG said, “Bank owes Tk21.58 crore to the client against which mortgage property is worth Tk26.15 crore. As the amount of collateral is more than the debt amount, there is no way to waive interest by simply debiting income.”

Despite the objection, the bank waived the interest lowering the market price of property to Tk18 crore. A bank could charge interests and show in the income statement until the loan account is identified as substandard. Later, the charged interests are taken in the suspense account till the identification of the account as bad loan. After this stage, interest on loan remains to be charged.

According to the accounting norms, the bank could only waive interest from suspense account and the uncharged interest. However, the bank could not waive interest, debiting income by any means. 

Though it is not required to get Bangladesh Bank’s approval in case of interest waiver, the board of the bank is trying hard to get formal approval of the authority for waiving interest of BI Industry’s loan in an attempt to put the blame on the shoulder of the central bank if any questions arise in future.

“Letters are being exchanged repeatedly between the two organisations, creating a situation where Bangladesh Bank is trying hard to avoid direct response over the case and the bank is strongly pursuing the central bank for getting its approval,” said a senior executive of Bangladesh Bank.

As contacted, Janata Bank Managing Director admitted the fact that it was not a right move to waive interest, by just debiting the income.

He, however, said the bank waived interest on loans after confirming recovery of the cost of fund. He would not detail anymore.