Govt continues unethical subsidy to banks for bank plunderers

The budget, which is basically an annual outline of fiscal policy, has over time turned into an all-encompassing document for the nation, making other national policy documents either less important or of no importance. Who cares about monetary policy that concentrates on money supply, inflation, interest rates, credit, banks, and other financial institutions? The Ministry of Planning announces the inflation rate every month, and will do so possibly every quarter from now on if they are shy of announcing it every month. The budget pre-announces the inflation target and even money supply, making the task of the central bank redundant. As a result, people now no longer believe the textbook theory that the central bank is the regulator of all banks. Rather, they see the ministry as the saviour of all banks and as a resort of last hope. As a result, they think that the budget determines the fortune of the banking sector. And we need to see what the banking sector gets from the budget for their operation and survival.

The first message the banking sector gets from the budget is that delinquency is all right, not punishable, rather adjustable. And that is why the budget has put aside Tk. 2,000 crore for the capital deficient state-owned banks in the name of recapitalisation, which mainly emerged from the all-pervasive default culture (or cancer) prevalent in state banks. Effectively, the money the budget is going to allocate for 'recapitalisation' is a rehabilitation fund for the 'innocent' defaulters - like a type of welfare fund that a benevolent governor earmarks, usually for the poor and the vulnerable.

Given the size of the FY2018 budget, which is Tk. 4 trillion with a 60:40 distribution pattern behind current expenditure and development spending, some may argue that the amount the state banks are receiving from the budget is meagre. Apparently, this is true, but the question lies somewhere else: 1) Whose money is this that we are giving to the beleaguered banks to compensate for the wilful misdeeds of the super-rich? 2) What are we signalling to society? and 3) How long will we continue to provide such charity packages for mismanagement and corruption using taxpayers' money?

This charity from the budget to the banking sector is morally hazardous and is dangerous for the economy. But hasn't this been going on and on? The answer is 'yes.' Is there any guarantee that this practice will stop after some years? The answer is 'no.' The need for recapitalisation is on the rise without any sign of abating, of hope for moral correctness. The recent Bangladesh Bank report reveals that the actual volume of capital shortage is Tk. 14,000 crore. Therefore, this palliative dose of only Tk. 2,000 crore signals that more is coming, because an incomplete dose of antibiotics will not work.

Why can't we let banks along with their regulator — the central bank — decide their way out within the Banking Company Act? Let them fix their problem in their way by issuing bonds of a special kind. Giving fiscal money to the monetary sector signals no borders between institutions and absence of independence - a gesture that damages integrity and dignity. An adult, if spoon-fed all the time, can never stand up. And that is why all state banks are losing the strength of their backbones to stand straight.

The total budgetary expenditure for capital shortfall of such banks was almost Tk. 10,000 crore in five years since 2011. The allocation for such support was Tk. 2,000 crore for FY2017. For FY2016, the initial allocation was Tk. 5,000 crore, although eventually Tk. 1,800 crore was disbursed. Why does this capital shortfall happen? Because the banks fail to maintain a healthy and safe reserve of capital in comparison to the volume of their assets, which we call the CRAR (capital to risk-weighted adequacy ratio). Up to 2015, the ratio was 10 percent. According to Basel III, an agreement of banking regulation and risk management, we need to maintain this ratio so this reserve can save the banks from sudden shocks that may otherwise throw them into bankruptcy, thus sending the depositors to the streets. From 2016 to 2019, the banks will have to maintain their capital at 0.625 percent in addition to 10 percent. The days are coming when we need to raise the CRAR to as high as 12.5 percent, whereas the six state banks are currently maintaining it at only 5.92 percent - alarmingly low to signal a collapse.

The overall CRAR is 10.68 percent, thanks to the nine foreign banks with a CRAR of as high as 24 percent and forty private commercial banks with the ratio slightly over 12 percent. Two state-owned specialised banks are maintaining a negative CRAR of 35 percent. The picture is clear; all the bad apples are state-owned.

The budget has not reduced the interest rate on sanchaypatra, the state-owned savings tool that distort the interest rate in the banking sector, deteriorates the effectiveness of monetary policy, damages hope for the bond market, turns us into a saving society by discouraging investment, and finally makes the act of deficit financing the most expensive ever. Since the government scoops up the whole amount of domestic financing from sanchaypatras and does not take any money from the banking sector, the banks suffer liquidity surplus and hence offer gradually lower interest rates on deposits. A non-market operation in the name of sanchaypatra is damaging the market for the banking sector - an inevitable consequence of the market economy.

Last but not least, the budget has imposed excise on bank deposits of Tk. 1 lakh or above - adding salt to injury. We hope the first thing the Parliament will do is torpedo this utterly unfair proposal on the very first day of the budget session.

Since revenue collection has always been the biggest challenge of the budget and will remain so in future, the Parliament should also think of creating a separate ministry for revenue that represents 12 percent of GDP, whereas there are many ministries holding 2 percent of GDP. China has a separate tax minister and we need to think of a revenue minister who will coordinate with the finance minister to achieve national goals with political aspirations. Pressurising a senior bureaucrat for this overwhelming job of revenue collection seems unfair. We could have done this job better by engaging a dedicated minister who can handle many issues more effectively through political motivation.

Reiterates demand for introducing multiple VAT rates

The country's apex trade body Saturday demanded of the government not to levy any excise duty on bank-account balance.

The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) also stuck to its old demand---introduction of multiple VAT (value added tax) rates instead one single rate of 15 per cent from the first day of next financial year (FY).

The chamber put forward the demands while requesting the government to reconsider a raft of proposals laid down in the proposed budget for the fiscal year 2017-18. .

Finance Minister AMA Muhith placed a Tk 4.27 trillion national budget for the fiscal year 2017-18, up-raised 26.17 per cent from the revised budget for the outgoing fiscal year.

In the budget he proposed to increase excise duty on bank-account balance. Those who have a bank-account balance worth over Tk 0.1 million have to pay Tk 800 instead of Tk 500 a year for maintaining that bank account.

The FBCCI said if the increased excise proposed in the new budget was charged, then the depositors would get a negative return on the money they keep with the banks.  

It also suggested that the government build infrastructure for massive industrialisation for achieving the targeted growth on a higher scale. The government has proposed the GDP growth target at 7.4 per cent for the fiscal year 2017-18, up from the current year's 7.24 per cent.    

"We have been examining the budget elaborately. We are taking suggestions from chambers and associations. We will put forward our suggestions to the government for reconsidering our proposals that were not reflected in the budget," president of the FBCCI Shafiul Islam Mohiuddin said at a post-budget joint press briefing at the apex trade body's office.

"We called upon the government to form a joint working committee comprising the National Board of Revenue and the FBCCI for implementing the existing revenue policy and sorting out problems related to revenue earnings," he told the journalists.

The apex trade body called upon the government also to reset the corporate-tax rate at 25 per cent for attracting local and foreign investments, raise to Tk 325,000 the individual income-tax ceiling from the proposed Tk 250,000, withdraw advance income tax on imported raw materials such as capital machinery, reduce tax on export proceeds for boosting country's export. Its demands also include waiver of e-commerce corporate tax for flourishing young and woman entrepreneurs, refraining from raising the prices of gas and power, withdrawal of supplementary duty on imported raw materials of leaf spring and special allocation to the tourism sector.

Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) president AKM Salim Osman, Bangladesh Garment Manufacturers and Exporters Association (BGMEA) president Md Siddiqur Rahman, Chittagong Chamber of Commerce and Industry (CCCI) president Mahbubul Alam and Bangladesh Chamber of Industries (BCI) president Mostofa Azad Chowdhury Babu were among others present.

Md Abdul Hamid Miah, Managing Director of Islami Bank Bangladesh Limited and Syed Waseque Md. Ali, Managing Director of First Security Islami Bank Ltd, signed a remittance agreement to provide safe and rapid remittance services to expatriate Bangladeshis

Mamur Ahmed, SVP, Consumer Banking Division of Prime Bank Limited and Sharif Zahir, Managing Director of Ananta Group, ink \"Prime Payroll\" agreement recently. Rahel Ahmed, Deputy Managing Director of the bank was present.