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.  

Little-known Chittagong-based Excel Dyeing and Printing has completed its purchase of 3.20 crore shares of Islami Bank worth about Tk 100 crore over the past two days, well ahead of its announced timeframe.

Earlier on Tuesday, Excel, which already had 3.23 crore shares, announced its intent to complete the transaction in 30 days.

With the latest acquisition, Excel's total holdings stand at slightly over 4 percent -- enough to secure two seats on the IBBL board.

The rushed approach has thickened the air of intrigue surrounding the little-known company, with many calling it a ruse for the much-talked about S Alam Group of Chittagong.

Talking to The Daily Star, a number of IBBL directors and senior officials confirmed that Excel Dyeing has a direct link to the business giant: Excel's chairman Badrun Nessa Alam is a close relative of Saiful Alam Masud, chairman of S Alam Group.

Badrun Nessa's husband Wahidul Alam Sheth is the managing director of Excel.

The Daily Star spoke to Sirajul Karim, Excel Dyeing's representative to the Islami Bank board, who said Badrun Nessa is Masud's sister.

Asked about the company's source of funds, he said: “I am an adviser here and I don't know anything in detail about the company.”

Excel Dyeing is one of the seven companies that bought Islami Bank shares last year in bulk to become corporate directors of the bank.

The companies collectively hold over 14 percent shares in the bank, with the holdings rising to over 16 percent with the latest share transaction.

The six other companies are: Armada Spinning Mills, ABC Venture, Blue International, Grand Business, Paradise International and Platinum Endeavors.

Arastoo Khan, Islami Bank's chairman, represents another little-known company Armada Spinning Mills in the board.

Islami Bank, the largest private bank in the country, has recently plunged into a bout of infighting five months after going through a wholesale restructuring of the board and the top management. Syed Ahsanul Alam, vice-chairman of the bank, was removed from his executive post on Tuesday, a move considered by many as an attempt to muffle dissent.

Earlier, Khan had alleged that Alam violated his oath of office by spreading propaganda about the bank.

Islami Bank was set up in 1983 with nearly 70 percent of its sponsorship coming from the Middle Eastern countries.

Since its inception, it has grown threefold every five years. It has around Tk 70,000 crore deposits and over one crore accountholders. The bank also channels over one-fourth of the inflow of Bangladesh's remittances.

Islamic Development Bank, a sponsor shareholder of IBBL, announced on Tuesday that it wanted to sell 8.69 crore shares out of its total holding of 12.07 crore in IBBL.

According to an update on the Dhaka Stock Exchange, the IDB finished the sales of the shares yesterday.