Discipline in the financial sector is the most important prerequisite for the development of an economy. The international donor organisations such as the World Bank and the International Monetary Fund (IMF) have set reforms in the financial sector as one of their preconditions for providing assistance to Bangladesh. Reform itself is one kind of discipline and by putting reform as the conditionality for continuing further assistance, the donor community is trying to bring discipline in the financial sector of the country. There is, however, no end of debates over the roles of multilateral donor bodies as regards their prescriptions for the third world economies like Bangladesh. So, the question still remains as to whether the government is doing the right thing by following the dictates of the multilateral donor bodies without qualification. But despite all the questions and doubts about the motives of the global financial institutions, what is beyond any question is that the economies of the least developed countries are not functioning properly and one of the reasons behind their poor performance is maladministration in the financial sector. Whether one likes the prescriptions of reforms in the financial institutions as proposed by the multilateral donor bodies or not, what one cannot still close one's eyes to is that the sector in question needs total overhauling. The recognition of this reality implies that the first task of the critique of the externally dictated reform measures would be to come up with a set of recommendations that are homegrown. So far, the critiques of the policies adopted by the successive governments have often been sweeping, adhocist or ideologically biased. Neither the policymakers in the government nor their critiques in the academia could ever come up with a consensus on how better to run the economy with less foreign influence and more local wisdom. As a consequence, the entire economy, let alone its financial arm, has been left to the whims and caprices of the powerful lobbies in the government and in the private sector, who never missed any opportunity to use the prevailing state of confusion at the policy level to their advantage. One needs only to look at the banking sector to have a glimpse of the state of mismanagement in the financial sector.
The primary job of a bank is to act as a facilitator in the financial transactions in the economy. Apart from looking after other people's money and providing some services to their clients in exchange for commissions, the banks are a major player in an economy as the supplier of credit to individuals, businesses and the government itself. Operation and management of credit by a bank is a telltale sign of its overall performance. How are the nationalised commercial banks (NCBs) performing in the country? If their record in the operation and management of the credit advanced to the businesses, individuals and the government is excellent, then one can say that they are performing well. And if the rate of recovery of the outstanding loans is the sign of a bank's health, then one may tend to heap praise on the NCBs' for their success in recovering 86 per cent of the defaulted loans from individuals and organisations who are not big debtors or defaulters. The success story of the banks as far as the recovery of the loans from the smaller debtors is concerned, it will look like a glass that is quarter filled while the rest three quarters are empty.
The four NCBs, the Sonali Bank, the Janata Bank, the Agrani Bank and the Rupali Bank, last year committed to the Bangladesh Bank that they would recover Tk.2.32 billion lying with some 20 very big defaulters. So far, the record of the Sonali Bank in recovering cash from such defaulters is not very bright. Of its recovery target of Tk.1.54 billion from the top defaulters, it could collect only Tk.203 million. The Janata Bank's performance was no better either. Its target of loan recovery was Tk.250 million, but it could retrieve only Tk.65 million from the big defaulters. Performance of the other two banks was similar. The Agrani Bank could get back only 45 per cent of its loans lying with the top debtors, which, in other words, is Tk.82 million recovery against a target of Tk.180 million. The record of the Rupali Bank, in this respect, is still poorer. It could collect only Tk 5.5 million out of its total outstanding loan of Tk 35 million lying with the bigger defaulters.
The Bangladesh Bank governor could only take the high-ups of the NCBs to task for their less than expected results in recovering the delinquent loans from its bigger defaulters.
What does this failure on the part of the NCBs to recover outstanding loans from the big defaulters imply? Notwithstanding their commendable records in the case of the decent borrowers who are more willing to abide by the rules and regulations that bind a debtor with the creditor, the banks have completely failed to retrieve its money from the ones who have taken these financial institutions for a ride. Unfortunately, the strict laws of the bank, which are applied with a vengeance on the smaller debtors, lose their strength when it comes to the case of the defaulters with power and influence in the administration. It is important to note here that the impunity with which big defaulters dodge their liabilities with the financial institutions of the country, is a glaring instance of delinquency and indiscipline in the financial sector. It is not just about the size of the unrealised loans that is the real point at issue here. The size of classified loans which is a bit over Tk.2.3 billion lying with 20 big defaulters may not amount to much when one compares it with the total volume of loan operation being carried out all over the country by the NCBs under consideration. Add to it the money the Non-Government Organisations (NGOs) and the various credit giving institutions in the private and public sectors have been mobilising in the economy. From this perspective, it may appear that one is attempting to make a mountain out of a molehill by raising the issue of the defaulting big borrowers from the NCBs. But that is in fact not the case here.
What the whole discussion started with at its inception is discipline in the financial sector. Banks can be compared to a barometer for the financial health of an economy. One cannot say that the economy is in good health when the banks are behaving in a biased manner with its clients. Can one say that there is discipline in the banking sector, if some of its clients can afford to ignore the rules, while the rest are chased like outlaws for any lapse on their part in observing the strict rules of the banks? If anything, this is a case of sheer discrimination in the application of the laws in the financial sector.
What did the top executives of the NCBs say in defence of their failure to apply the banking rules in an even-handed manner? The top defaulters are very powerful, they said to the Bangladesh Bank governor. The banks were totally helpless before these powerful quarters as the latter could also take these banks to court to stop recovery of the defaulted loans.
What has the government to say about this discrimination in the application of its laws in the banking sector? This of course does not speak well of the discipline in the financial sector of the economy.