The government will keep an allocation in next year's budget to meet state banks' capital deficit in continuation of a years-long trend to go easy on the financial institutions for their irresponsible lending practices.

Some Tk 1,700-Tk 1,800 crore may be allocated for the state banks in fiscal 2017-18's budget, down from the current year's Tk 2,000 crore, according to a finance ministry official.

Despite criticism from economists, the government has been allocating funds for state banks from the state coffer for several years now.

The continuation of unconditional recapitalisation of badly managed banks does not send the right signal about the use of taxpayers' money at a time when the government is introducing a significant reform in the form of the new VAT law to raise additional revenue, said Zahid Hussain, lead economist of the World Bank's Dhaka office.

“It gives opponents of this reform an extra point to argue that the additional revenue is unlikely to be put to good use,” he added.

Even after the substantial capital injection, the eight state banks -- six commercial and two specialised -- ran a total deficit of Tk 13,819 crore as of December 31, 2016.

The capital deficit of the six commercial banks was Tk 5,993 crore.

Sonali has a shortfall of Tk 3,475 crore, BASIC Tk 2,684 crore and Rupali Bank Tk 714 crore. Agrani, Janata and Bangladesh Development Bank have surplus.

The two specialised banks -- Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank -- together have a capital shortfall of Tk 7,826 crore.

Last year, the finance ministry started working on an alternative way to plug the state bank's capital deficit, said an official.

“That is why only Tk 2,000 crore was allocated this fiscal year. Earlier, Tk 5,000 crore used to be allocated,” he added.

The banking division, however, proposed Tk 10,000 crore last year, which the finance division turned down.

“If Tk 10,000 crore is given in two consecutive years to meet their capital deficit, the banks will be told that they would not be given any money in future,” said a banking division official.

Meanwhile, a high official of BASIC Bank said running the financial institution is difficult if its huge capital deficit, which was incurred due to previous board and management's malpractice, is not met.

This fiscal year, the banks are yet to get their capital injection due to a disagreement on how the funds would be made available: by cash or in the form of bonds.

Three banks -- BASIC, Rupali and Janata -- wanted to raise about Tk 4,100 crore by issuing different types of bonds to meet their huge capital shortfall.  But the finance division is yet to give its consent.

Now, BASIC will most probably be given Tk 800 crore from this year's budget and Tk 1,000 crore from next year's budget.