The state-run commercial banks once again ran into a capital shortfall in the first quarter of the year after they failed to arrest the default culture.
On March 31, four state banks' combined capital deficit stood at Tk 241 crore, mainly due to Sonali and Rupali, which ran deficits of Tk 278 crore and Tk 277 crore. Agrani and Janata, however, had surpluses of Tk 147 crore and Tk 169 crore.
The four banks' capital deficit becomes all the more alarming when their capital base at the end of December is taken into account: they had a combined surplus of Tk 855 crore, with each bank registering surpluses.
An official of a state bank blamed the steep erosion of capital base to the rise in default loans in the January-March period, while tipping the shortfall to widen further in the near future.
He further said embezzlement in state banks has not completely stopped after the much-publicised Hall-Mark and Bismillah Group scams. In fact, a new term “reference loan” has become popular in banks, which is when loans are sanctioned upon persuasion from various influential quarters, he added.
“Loans given on poor judgment inevitably become bad,” said the banker.
Sonali's default loans shot up by Tk 803 crore and Rupali's by Tk 535 crore in the three months.
Many loans which the banks previously declassified were put in the classified category after Bangladesh Bank inspections during the January-March period, Zaid Bakht, research director of the Bangladesh Institute of Development Studies, a think tank, told The Daily Star.
“But the fact of the matter is, the hands of the top defaulters are too long—the banks face many problems in realising loans from them.”
Bakht, also a director of Sonali Bank, said the bank goes through rigorous selection criteria in issuing new loans, but on many occasions it had to give fresh loans to bad borrowers.
If the banks refuse to issue loans, the influential quarters threaten them and instruct them to send the proposal to the central bank, from where they usually obtain 'no-objection' consent, he said.
When the loan proposals are forwarded to Bangladesh Bank, it typically suggests the banks give the loans based on bank-customer relationship.
“In this case, the banks cannot ignore the pressure from the influential quarters and are compelled to give the loans. If the central bank gives a firm no, it will be much easier to refuse those loan proposals,” said the Sonali Bank director.

The central bank has rules for giving out loans, Mahfuzur Rahman, executive director of BB, told The Daily Star. “If any loan proposal is against the rules, the banks should not forward it to the central bank.”
Rahman said there are many instances when a good party defaults due to unfavourable business environment. “If the banks give clients support during this time, they get the opportunity to repay the loan.”
“Besides, the banks know their borrowers well, which is why the central bank recommends settling on loan proposals according to banker-customer relations. Banks must have that capacity to handle customers,” he said.
Bakht said the government may need to inject capital again to strengthen the position of the state banks. The government had previously injected about Tk 4,100 crore into the four banks to meet their deficit.
A finance ministry official said Tk 5,000 crore has been set aside in the current fiscal year's budget to meet the state banks' capital deficit.
Further capital injection must be conditional, Zahid Hussain, lead economist of the World Bank's Dhaka office, said.
Various conditions including loan recovery targets should be tagged with the fresh capital, he said, adding that there must be a provision for punishment for failure to reach the target. The punishment would be applicable to the management, with their non-salary benefits like bonus curtailed.
Hussain also called for a minimum performance indicator for the chief executive, which would be evaluated regularly.
Meanwhile, state-run BASIC Bank's capital shortfall increased to Tk 1,037 crore at the end of March from Tk 647 crore last December. The specialised bank has also sought money from the government to meet the shortfall.