The presence of a large volume of classified loans is seen as a major weakness of the country's banking system. In fact, the problem has pushed the sector into serious crisis and banks have been struggling for a long time to overcome it . The reasons behind a substantial volume of loans becoming classified are many; systemic failure is a leading one. What is, however, true is that banks' funds worth over taka 1.25 trillion have become non-performing. With their bulging portfolio of non-performing loans, some banks are somehow managing their existence only in name. Their stock prices on the bourses are testimony to that fact.
Undeniably, the banking sector has a serious dearth of 'good' borrowers. That is why the central bank used to encourage banks to patronise the borrowers who are regular in servicing their debts. As an incentive, banks were allowed to grant a 10 per cent rebate on interest amount to this class of borrowers. The central bank, however, through a circular issued late last week, asked the banks not to grant any such rebate after September 30 last year. The fixation of single digit lending rate from April 1 last has been cited as the reason. The regulator feels that the lower lending rate itself is an incentive for all borrowers.
The withdrawal incentive granted to 'good' borrowers does not appear to be a prudent move. Rather, the central bank's action is likely to trigger some unsavoury questions. Allegations have it that there are genuine reasons to count some of those to be true-- that a section of influential yet delinquent borrowers could manage changes/amendments to relevant rules to delay repayment of overdue loans and escape punishment. Even, in some cases, they could enjoy rebates and exemptions meant for 'good borrowers'.
'Loan rescheduling' is one facility that has been abused most by the defaulters to come out clean time and again. The recent decision not to classify loans in the event of failure by the borrowers concerned to service their bank debts until September next is a timely move, but it has also created opportunities for a section of 'delinquent' borrowers to stay safe and enjoy the interest rate-related rebates and exemptions. All borrowers, it seems, now belong to the same category and there is no differentiation as such.
Since the high-presence of non-performing loans remains a major problem for most banks, finding good borrowers who are regular in servicing their debt obligations needs to be a priority task for the bankers. And these good borrowers/ clients do deserve patronisation in various forms, including cash incentives.
The latest central bank directive while withdrawing the interest rate rebate asks banks to continue recognising their good clients in various other forms. However, cash incentives do count more than anything else in the world of banking. The single-digit lending rate is supposed to help every borrower. Still, there would be loan default and that is the area where good clients matter. So, the central bank should reconsider the issue of cash incentive for banks' good clients.