If the situation with state-owned commercial banks (SoCBs) is described as bad or worse, the same in the case of the two government-owned specialised banks (SBs) -- the Bangladesh Krishi Unnayan Bank (BKB) and the Rajshahi Krishi Unnayan Bank (RAKUB) -- is terrible. All attention is focused on SoCBs since they mainly operate in urban areas and deal with clients engaged in trading, manufacturing and in other professions. But the state of affairs with the SBs is hardly taken into notice with the required amount of seriousness either by the policymakers or the relevant authorities.
The policymakers have, apparently, made a foregone conclusion that SBs would be loss-making entities since they disburse low-interest bearing loans among farmers and others engaged in farm-related activities. The SBs, as directed by the government, do not fix market-based lending rates that are usually higher. The government is supposed to compensate by providing subsidy to the SBs on account of low-interest bearing farm loans. The government's failure to make available the required volume of subsidy coupled with inefficiency on the part of the management has almost brought the two SBs to their knees. The state of their financial health says it all. The aggregate capital shortfall of the SBs in question, according to a report published in this paper last Monday, reached a staggering Tk.86.54 billion until June last. In fact, the need for capital replenishment of these banks has been rising constantly despite periodic disbursement of government doles.
The rise in the volume of soured loans has much to do with the ever-expanding capital shortfall. The aggregate volume of non-performing loans (NPLs) of these two SBs stood at Tk.52.41 billion as of June 30 last. There is no denying that the clientele of these SBs are entirely different from that of the conventional banks. The former mainly disburse farm loans in small amounts, in most cases, without any collateral. Moreover, in the case of default, the SBs usually do not resort to harsh measures for understandable reasons. A section of unscrupulous clients tend to take advantage of such relaxed attitude to secure loans with an ulterior motive of not paying the same back. Some dishonest officials are found ready to extend all possible cooperation to such clients. The truth is that borrowers of farm loans are the needy people and a good number of them use the borrowed funds for consumption or purposes other than farming. Many such borrowers also default on repayment. Thus, the very purposes of lending -- helping the farmers in need and boosting farm production at the same time -- remain unmet.
The Bangladesh Bank (BB), as the regulatory body, being worried about the financial health of the state-owned SBs has signed separate memorandums of understanding with the SBs asking the latter to improve their conditions. That they have failed to meet the objectives of the MoUs does not require any explanation. But such a deplorable situation should not continue anymore. The government as owner and the BB as regulator must help these banks to get out of the wood.