Banks concerned are likely to suffer financial losses if the country's jute sector is allowed block account facilities, the central bank has opined.
It may also create liquidity crisis including drop in profits in the banking sector, it said.
The Bangladesh Bank (BB) has given its opinion in response to a recent letter sent by the Ministry of Finance (MoF).
Earlier, the Ministry of Textiles and Jute (MoTJ) has put forward the proposal to the finance ministry to take necessary action in this regard. Later, the proposal was sent to the central bank for its opinions.
The advisory committee on jute at a meeting took decision on block account facilities for the jute sector.
"The BB is positive to provide the jute sector with block account facilities for outstanding bank loans for the development of the sector as the government is eager to give special facilities considering the importance of the jute sector," the BB said.
It has recommended that outstanding loans of the jute sector be transferred to block account for 10 years with 02-year moratorium to repay existing outstanding loans case-to-case and bankers-customers relations basis.
The loan provided under the refinancing scheme would not be applicable to the block account facility, the BB said.
It also thinks that the existing refinancing scheme may be ineffective for ten years if the government provides block account facility. It may be difficult to collect the block funds and BB may suffer huge financial losses.
According to the BB policy, "The borrowers must pay at least 15 per cent of the outstanding balance (outstanding amount after excluding the down payment on rescheduling) to avail any further credit facility from the rescheduling bank.
After creating block account facility, the borrowers must pay at least 15 per cent in form of compromised amount to take regular loan facility from other banks, the policy mentioned.
Currently, the jute sector enjoys different facilities from the government. The BB launched a refinancing scheme with a fund of Tk 5.0 billion for purchasing raw jute from the farmers first. Later, the amount has been increased by Tk 2.0 billion to Tk 7.0 billion, a senior central baker said.
Some 20 jute mills under Bangladesh Jute Mills Corporation (BJMC) owed 0ver Tk 8.73 billion to four state-owned banks -- Sonali, Janata, Agrani and Rupali-- as of September 2018. On the other hand, the mills owed only some funds to private commercial banks, he added.
The BJMC incurred a loss of Tk 660 million in fiscal year (FY) 2011-12 while Tk 3.84 billion in FY 2012-13, Tk 4.97 billion in FY 2013-14, Tk 7.26 billion in FY 2014-15 and Tk 5.88 billion in FY 2015-16, according to the Bangladesh Economic Review-2016.
When contacted, BJMC chairman Md Mahmudul Hassan said, "We have requested the ministry concerned to provide block account facilities for outstanding bank loans of BJMC mills. The volume of the loan would be over Tk 8.50 billion including interest."
Deputy Secretary of Financial Institutions Division Mrityunjoy Saha declined to make comments in this regard.
When contacted, General Manager of Banking Regulation and Policy Department of BB Abu Farah Md Naser also declined to make any comment in this regard.
The BJMC's loss has been ballooning for a couple of years. The mills under BJMC are also incurring losses due to mismanagement and corruption and lack of proper plans and initiatives, industry insiders said.
