When a state-owned Commercial bank (SocB) here seeks bailout, in terms of replenishment of its capital, it does not stir up any surprise. It has become more of a routine affair for the government to keep aside certain amount as 'recapitalisation' fund in the national budget for the state-owned banks. The ongoing financial year is also no exception. Sonali Bank, the largest of public sector banks, is set to receive certain amount out of such budgetary allocation.
But the bank finds the amount too meagre to meet the deficit, in terms of capital, in accordance with the Basel-III guideline. So, it has requested the government to offer guarantee worth Tk 60 billion. The guarantee does not involve any fund transfer on the part of the government. Yet the move would largely help the bank overcome its capital-related problem.
The performance of the state-owned banks has been a major sore point of the country's financial sector. The size of non-performing loans (NPLs) in these banks is substantial and loan scams are too many compared to that of their private sector counterparts. Management inefficiency coupled with political interference has made things worse for the public sector banks. With the government exercising its control the overall situation in these banks is unlikely to improve anytime soon. The relevant government policymakers are aware of this fact, yet they are in no mood to relax their grip.
Even if the government at any point of time in the future decides to relax its control over the state-owned banks, it is unlikely to do so in the case of Sonali Bank. The bank has always been a very handy and useful tool for the government. While the government pumps certain amount of capital into the bank almost every year, the fiscal benefits it exacts in exchange from the bank are quite heavy.
For instance, the government did not pay the commission worth Tk. 50 billion as against the letter of credit opened for importing goods and equipment for the cost-intensive Rooppur Nuclear Power Plant (RNPP). The bank also provides, at least 37 services free of cost and 14 other services at nominal cost under the government's safety net programmes. The bank, like other state-owned banks, lends funds to other public sector entities, often being compelled by the government. In most cases, these entities default on repayment of loans and the government converts such loans into low-interest bearing bonds of 20 to 30-year tenure. The Sonali Bank alone counts an estimated loss of around Tk.10.59 billion a year on this account.
So, it is quite evident that in addition to classified loans, nonpayment of dues by the government as against the services it avails from the Sonali Bank has been contributing to the financial hardship of the latter. Thus, the government, instead of doling out funds for capital replenishment, should pay for the services it takes from it. This should also be a standard practice for all other state-owned banks. The government, while availing the services of the public sector banks, needs to forget the fact that it owns these financial institutions. Besides, it does need to stop interfering in management and fiscal operations of these banks. That would help straighten things up, to a great extent.