In a baffling move, the central bank is set to allow precarious Janata Bank to reschedule default loans amounting to Tk 1,049 crore of little-known Root Group that ranks 49 out of the top 300 defaulters in the country.
Root Group, a textile and fertiliser producer, will be permitted to regularise its bad loans by providing only 5 percent down payment -- at a time when it is being investigated by two wings of the Bangladesh Bank for charges of money laundering.
Not only that, the state bank is preparing to extend fresh import financing worth Tk 750 crore to the group.
Janata’s generosity towards Root Group comes at a time when the bank’s financial health is fragile.
As of June, its provisioning shortfall stands at Tk 8,256 crore -- the biggest deficit for a bank in Bangladesh’s history.
At the end of March, its default loans stood at Tk 21,410 crore, which was 44 percent of its total outstanding loans. Root alone accounted for 4.90 percent of the sum.
And in giving the loans Janata breached the single borrower exposure limit set by the central bank.
Banks are allowed to disburse a maximum of 15 percent of their capital to a person or group. The total outstanding loans of Root, at Tk 1,060 crore, is 19.51 percent of Janata’s capital.
And by extending fresh financing Janata will tread further past the ceiling.
It all started on July 8, when the Janata board decided to reschedule Root’s default loans by taking 3 percent down payment -- or Tk 30.80 crore -- of the outstanding amount.
Were the central bank rules followed, Root would have to give at least Tk 142.28 crore as down payment.
Then on July 28 the lender sought the BB’s no-objection certificate (NOC) to reschedule the default loans for nine years against 3 percent down payment.
Surprisingly, the central bank’s higher ups responded to the plea positively and it has already completed all preparation to regularise the loans.
Curiously, a BB assessment opposed the decision given the track record of Root subsidiary Gram Bangla Fertiliser and Agro Industries.
In 2011, Gram Bangla refused to pay $60,660 to an Indian bank to adjust its debt for import payments. The Indian high commission also requested Janata to take an initiative to pay back the fund, but Root held firm.
Meanwhile, Root applied to the High Court to get the default status lifted from the BB’s credit information bureau (CIB).
The court on April 24 asked the group to give 5 percent down payment against its outstanding loans to get a clean CIB report for four weeks. But Root failed to deposit the amount on time.
It applied to the HC again and was once again instructed to deposit the amount, which it is yet to do.
Janata though bypassed the court order and allowed Root to reschedule its loans with only 3 percent down payment. Not only that, it concealed the HC order for 5 percent down payment in its letter to the central bank.
After being informed of the matter, the central bank on July 29 asked the bank to explain why it hid the HC instruction. The bank was also asked to submit a probe report about the accusation of fund diversion by Root.
On August 18, the bank admitted that the group diverted a large amount of fund violating the rules and regulations.
For instance, Ranka Denim Textile Mills, a subsidiary of Root, had not settled the import liabilities of Tk 379 crore from its export earnings. Rather, it paid Tk 218 crore to adjust its sister companies’ bank loans.
Besides, it misused Tk 136 crore of the export earnings by diverting the fund, according to the letter sent to the BB.
The group, however, will provide the rest of the 2 percent down payment within the next two months, the bank said.
“There is no scope to give NOC to Root right now as the bank admitted that it had diverted funds. Besides, the Bangladesh Financial Intelligence Unit is now investigating the matter,” said the BB assessment paper.
According to the central bank’s draft decision, the rescheduling facility will be annulled if the BFIU find Root’s involvement in any form of money laundering.
“The central bank is yet to give any clearance to my companies to reschedule the loans,” said Mohammed Razzakul Hossen Tutul, managing director of Root Group.
He declined to give further comments.
Md Abdus Salam Azad, managing director of Janata Bank, could not be reached for comment.
Md Serajul Islam, an executive director and spokesperson of the central bank, said the BB would take a decision as per the court order.
Asked whether the HC had instructed the BB to reschedule the loans by taking 5 percent down payment, he declined to give an answer.
Earlier in 2013, the central bank carried out an inspection at Ramna corporate branch of Janata Bank and found Ranka Sohel Composite Textile Mills, a subsidiary of Root, to be involved in money laundering.
The company had exported goods to a company in Turkey but none of the payment for the shipment came to Bangladesh. It later showed it had realised $6.71 lakh, but the amount actually came from Dubai and Singapore.
“Janata should not be allowed to reschedule the default loans because of its alleged involvement in financial corruption -- such a move will send a wrong signal to the financial sector,” said Khondker Ibrahim Khaled, a former deputy governor of the central bank.