HC slams BB attempt to favor loan defaulters

The High Court (HC) of Bangladesh on Tuesday slammed central bank’s attempt to favor loan defaulters by imposing a status-quo for one month on a Bangladesh Bank circular that had allowed special concession for those nonpayers.

The central bank on May 16 posted the circular on its website, allowing loan defaulters to reschedule their bank loans by paying only 2 percent down payment and securing further loan in such a relaxed way.

Supreme Court lawyer advocate Manjil Morshed on behalf of Human Rights and Peace for Bangladesh, a national rights body, filed a petition, challenging the Bangladesh Bank circular.

The High Court division bench comprising Justice FRM Nazmul Ahasan and Justice KM Kamrul Kader passed the order after holding hearing on the plea.

“After today’s order, the central bank circular will not be in effect till June 24,” Advocate Morshed said local media on Tuesday.

Meanwhile, in hearing the petition the High Court observed that the country’s banking sector is no longer business-friendly, rather banks have become organizations of usurers.

“Another Tk 100,000 crore may be laundered from the country if the big loan defaulters are given further opportunity to get bank loans in line with Bangladesh Bank’s May 16 circular,” the court observed.

Referring to the BB notice, the HC said, “The central bank on the one hand is patronizing the big loan defaulters by giving them various facilities. And on the other hand, it is harassing small loan defaulters by filing cases related to loans and bank cheques.”

Punishing good, favoring bad

“It is like punishing the good and favoring the bad,” the court’s observation added.

As of December 2018, there were a total of 266,118 loan defaulters in the country and the monetary value of these bad loans was Bangladeshi taka 93,911 crore ($11,180M) — mainly due to poor governance that has plagued the financial sector in the absence of a strong and independent central bank, as well as lack of political will.

Defaulting loans stood at Tk50,155 crore in 2014, Tk51,371crore in 2015, Tk62,172crore in 2016, and Tk74,303 crore in 2017, according to central bank data.

Further loans for defaulters

The court said, “The BB has given the big loan defaulters opportunities to get further loans by rescheduling their existing ones at 9 percent interest.”

It added: “At the same time, it is compelling genuine businesspeople to pay 14 to 15 percent interest, which is a discrimination.”

“Bangladesh Bank is an independent entity, but how could it work in favor of the loan defaulters?” the court questioned.

It observed that the central bank is yet to implement the prime minister’s instruction to bring down the lending rate for bank loans to a single digit.

During the court proceedings, M Moniruzzaman, counsel for the BB, told the court that his client has the authority to issue a notice for rescheduling bank loans.

The BB issued the notice on May 16 to bring the loan defaulters to book, he argued.

Manzill opposed Moniruzzaman’s argument, saying the BB committed a fraud with the HC by issuing this notice.

The lawyer for the BB had told the HC on May 16 afternoon that the central bank would not issue any notice allowing loan defaulters to reschedule their loans, Manzill mentioned.

But only a couple of hours later, the BB issued the notice at 4:00pm, allowing the loan defaulters to get further loans, which is a “fraudulence” with the HC, Manzill said.  

Deputy Attorney General ABM Abdullah-Al-Mahmud Bashar represented the state.

List of defaulters

On May 16, the same HC bench ordered the BB to submit by June 23 a list of names and addresses of borrowers, who defaulted on loans of over Tk 1 crore each.

It also asked the BB governor to submit to it a report by the same date with details on the money laundered to different countries and the steps taken to recover it.

The court said it would take necessary action against the BB if it fails to submit the list and the report to it.

The HC will go on annual vacation on May 24 and reopen on June 16.

Earlier on February 13, the HRPB moved the writ petition at the HC, which issued a rule asking the authorities to explain why their failure or inaction to stop various irregularities and corruption in sanctioning loans and offering waiver of interest payments against bank loans in the last 20 years should not be declared illegal.

The respondents to the rule are secretaries to the Cabinet Division, the Prime Minister’s Office, the finance ministry, the financial institutions division and the law ministry, the BB governor, and the chairmen of the National Board of Revenue and the Anti-Corruption Commission.

Kamruzzaman