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The Financial Express

Financing large private power plants

BB to bend rules for banks to invest beyond limit

| Updated: October 25, 2017 04:35:36


BB to bend rules for banks  to invest beyond limit

Banks may be allowed to break the barrier and lend beyond 25 per cent of their paid-up capital to single borrowers to facilitate installation of large power plants.

Sources said the Bangladesh Bank (BB), in this case of government priority, could bend certain conditions of the Bank Company Act which debar banks from crossing the 25 per cent limit.

An inter-ministerial committee has made such suggestion as power division needs nearly US$30 billion by 2021 to help implement the government plans for providing electricity to all, officials said.

According to section 26 B (2) of the Bank Company Act a bank is not permitted to lend an amount exceeding 25 per cent of its paid-up capital to a single borrower, as a safeguard against any big loan anomalies.

The committee, led by finance division additional secretary Jalal Ahmed, also suggested that the government, if need be, should provide state guarantee for large-sized loans considering power as a high-priority sector.

The body also suggested amending the policy of 'Government Islamic Investment Bond' so that the funds can also be used in power sector alongside the existing provision of putting the money into only Islamic shariah-based investments.

In this case, the committee opined that the tenure of bonds could be extended to 180-270 days from the existing 90-180 days.

The committee, however, felt that no amendment to the relevant section of the Bank Company Act is necessary for providing large loans to the fund-guzzling power sector.

A meeting held in power division on June 21 last formed the committee to examine whether any provision of the Bank Company Act stands in the way of large lending to power sector and to suggest ways of removing such roadblocks.

The power division is of the opinion that nowadays large-sized power plants need to be set up to meet a growing demand for electricity. And it requires big sums of money.

Earlier, the central bank had suggested seeking syndicated loans for financing capital-intensive power projects.

It welcomed a proposal for issuing bonds by power division to collect money for setting up power plants, saying that banks and financial institutions will be interested to make long-term investment in those bonds.

The BB also viewed that there is no barrier to investing money from 'Government Islamic Investment Bond' in the power sector. But the issue has to be incorporated into the relevant policy for use of funds.

According to central bank data until June this year, some Tk 88.14 billion had been collected through issuing three-to-six-month-term Islamic Bonds. Of the money, some Tk 47.70 billion was invested in different sectors and the rest remained in the vault.

The unutilised amount can be invested in power sector, the BB opined.

A senior official at the ministry of finance told the FE that country's banks and financial institutions, both in public and private sectors, possess large sums of idle money which can be invested in power sector to help generate necessary electricity to feed the power-hungry consumers.

"We want the money invested in power sector instead of keeping it idle and counting to incur losses from interest payments," he said.

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