Thursday | 16 January 2025 | Reg No- 06
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Thursday | 16 January 2025 | Epaper

Gridlock in lawsuits and NPLs weaken financial sector

Published : Wednesday, 3 March, 2021 at 12:00 AM  Count : 550
Md Zillur Rahaman
Md Zillur Rahaman

Md Zillur Rahaman

Bank is a financial intermediary. Its prime duty is to borrow money from the depositors and lends the same to the entrepreneurs as an investment to do business and others financial activities. Bank plays a dominant role in modern capitalist economy and it also helps in various foreign exchange businesses. Bank mainly deals with the public money and makes investment for various purposes but many entrepreneurs don't return back the money in time and sometimes bank has no options but take legal action against the Non-Performing Loan (NPL) holders to recover the bank's dues.

Some clients show numerous causes of loan defaulter and some of them have a habitual tendency not to return back the bank money in time and they also use lawsuit as a way to time killing against the loan recovery process. Bank passes out years after years but cannot realise the NPLs from the vested quarters for a long time. Some of them are politically so influential persons that bank cannot take tough legal action against them.

Bankers and the economists do believe that some special initiatives are needed to dispose the lawsuits quickly and in that cases some special High Court bench may be formulated for the greater interest of the bank's dues recovery. According to the latest BB data, total outstanding loan of our country was Tk 11587.75 billion on December 31, 2020 and the amount of NPL was Tk 887.34 billion in the same time which was 7.66 percent of the total outstanding loan. Out of the NPLs, Tk 422.92 billion was state-owned banks and rest Tk 403.61 billion was private banks. On the other side, Tk 20.38 billion was state-owned specialist banks and Tk 40.61 billion was foreign banks.

According to another report of BB, total 277094 different financial lawsuits were pending at various courts in Bangladesh on June 30, 2020 and the outstanding loan against said lawsuits was Tk 2512.69 billion in the same period. This amount was three times of the latest NPLs of the country and was more than the collection of tax revenue in 2019-20 financial year of the National Board of Revenue.

The said BB report basically mentioned four types of money suits--writ petition, Artha Rin suits, Certificate suits and Bankruptcy and other suits. Generally bank files lawsuits against those who are wilful, tactful and have amicably little scope to recover the NPLs. According to the BB report, most of the money lawsuits are certificate suits but the NPL outstanding against those was the lowest amount i.e. Tk 24.19 billion. Number of Artha Rin suits are 60973 against which loan outstanding was Tk 1291.15 billion, writ petition was more than 5000 against which loan outstanding was Tk 347.88 billion and the Bankruptcy and other suits are 58495 against which loan outstanding was Tk 849.06 billion.

Various initiative have been taken from the respective banks to recover the bank dues, but progress of the suits has been made slowly, as a result, a huge lawsuits are gridlocked in the respective courts and billions of money are unrecovered since long. Bankers are blamed to some lawyers of the defaulter clients as well as some loopholes of the various laws. Defaulter clients are taking the chance of the lawsuits loopholes. Cost of the huge lawsuits incurred a big amount of expenditure of the banks which ultimately puts extra pressure on operating profit and share holders equity.

However, the classified loans as well as the gridlock of lawsuits don't generate any income, on the contrary, it is required to pay interest/profit to the depositors and also required to make provisions against the said classified and lawsuits loans. According to the BB data, state-owned six banks have Tk1063.66 billion as loans outstanding against 79782 lawsuits out of which Tk 661.75 billion was pending against 20136 writ petition and Artha Rin suits. Besides this, these six banks have Tk 400.22 billion against 59646 certificates, bankruptcy and others suits. State-owned Sonali and Janata Bank have maximum Tk 390.00 billion as loans outstanding against writ petition and Artha Rin suits and the private banks have Tk 1222.74 billion as loans outstanding against 64860 different lawsuits.

It is a matter of dismay that most of the lawsuits outstanding are pending at Artha Rin Court but the number of court is very few as per demand. Justice of the court is not sufficient and it has a lack of efficient bank officials as well as expert lawyers which made gridlock of the Artha Rin suits since long. But the relevant experts viewed that law reform is not essential, as the Artha Rin suits mentioned the specific timeframe of suits disposal, just it needs to make initiative how to resolve the suits quickly removing the loopholes of the Artha Rin suits and the relevant courts.

Since the amount of bad NPLs is increasing alarmingly, as a result, the income of the said loans is decreasing. Different banks have preserved Tk 637.72 billion as provisions against NPL and income suspended as Tk 360.00 billion.

Many big groups of our country have to avail loans from different banks and financial institutions but they cannot return back the money in time. Banks cannot show them as defaulter and cannot take tough legal action, if somehow bank takes any action they challenge the issue at upper court and file writ petition which kills year after year. Someone doesn't pay any outstanding loan but shows as regular due to upper court instructions, then banks have nothing to do but paying the interest/profit to the depositors against said outstanding loans.

Some banks are more interested to disburse big loans ignoring SME and consumers and some influential persons are grabbing the chance with the connivance of some banks director and political leaders. Later these loans become defaulter and bank cannot recover the same for year after year. Gridlock of lawsuits and NPLs demeans the base of financial sector as it cripples the bank income gradually, increases the cost of fund and other expenditure, ultimately which reflects in operating profit and equity  of the share holders.

Various anomalies have been made during loan sanctions and disbursement in our financial sector, as a result, NPL is being upward alarmingly. Repeatedly rescheduling of the loans stuck up the long outstanding NPLs and banks are bound to file money suits to recover the dues but it cannot be settled for years after years and as a result, it has weakened the overall financial system. It has also created base for liquidity crisis and shrinking the investment scope.
The writer is a banker and
freelance contributor










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