The Financial Express
Swasti Lankabangla Swasti Lankabangla

Bulging NPL and debt-recovery agents  

Bulging NPL and debt-recovery agents   

Finance Minister AHM Mustafa Kamal late last week disclosed that asset management companies (AMCs) would be established soon with the objective of recovering non-performing loans (NPLs) of the banks.

The minister, perhaps, wanted to refer to debt recovery agents that are employed in many countries for collecting soured assets belonging to banks, other financial institutions, private firms and individuals in exchange for commission or fees or sharing a small part of the recovered amount.

AMCs, in fact, do manage and invest funds of firms and individuals. They employ professionals and do their job in exchange for fees. Loan-recovery is not their job.

There have been talks of engaging private firms in the task of loan recovery for a long time. But no concrete steps have been taken as yet though the size of the NPLs with banks has grown bigger and reached an unmanageable level.

These days, the NPL issue dominates any discussion concerning the banking industry. Such dominance is obvious when more than 11 per cent of the total outstanding loans of banks have turned sour. However, the size will be much bigger if the rescheduled and written-off loans are included. 

There have been lots of talks about reducing the volume of NPLs in recent years. But the opposite is happening---the NPLs with banks have already crossed the trillion-taka mark.

The conventional methods of loan recovery have not worked. Rather, some new ideas---restructured loan scheme is one---thrust up on the central bank by a section of powerful delinquent borrowers have only added to the woes of the lenders.

In fact, the overall environment surrounding the banking industry is now considered unhealthy and a number of factors are held responsible for it. Courtesy of media, experts, policymakers and other stakeholders are aware of the situation prevailing in the banking industry and also of the leading contributors to it.

But what is seen as a major problem is that remedial steps have been scanty compared to the worries that are expressed by various quarters about banks' financial health.

One of the main reasons for accumulation of huge NPL is indiscipline in fund management, irregularities in loan operations and weak oversight activities on the part of the central bank.

The banks are also found to be hesitant to take necessary actions, legal or otherwise, against loan defaulters. They tend to make futile attempts to recover funds bypassing legal actions.

However, there are certain reasons for avoiding legal measures by banks. The banks are required to file money suits with the especialised money loan courts that are overburdened with cases. These courts take years to dispose of cases. Besides, execution of court verdicts also remains a problem.

The banks are dependent on their respective legal sections for loan recovery. Besides law officers, these sections are manned by some officers meant for sending legal notices to the loan defaulters and taking other necessary actions. But a typical legal department of any organisation tends to look at the loan recovery issue as a legal one rather than revenue collection measure.

Litigation as a recovery measure having some limitations, in many cases, has not been able to produce desired results. That is why banks and other financial institutions in many countries outsourced debt collection services from specialised agencies.

 In neighbouring India, the third-party debt collection industry plays an important role in its economy. The industry is employing hundreds of thousands of Indians as collection professionals. These professionals are providing service to a number of industries and commercial establishments, ranging from banks, to telecom service providers, to insurance companies. Indian economy is drawing notable benefit out of debt-collection industry. Indian debt collection agencies are also providing service to US banks and other financial institutions.

However, there are some downsides of the debt-collection business. Allegations have it that debt collectors do often embarrass, harass, humiliate and terrorise the debtors by extra-legal measures. The Reserve Bank of India sometime back issued necessary guidelines for the debt collection industry to stop such harassment and intimidation. But the guidelines prescribed by the RBI are enforced against the banks that employ the collection agents, not the collection agents directly.

It is now clear that Bangladesh, too, is considering introduction of loan recovery agents to help the country's banks that are now having a huge burden of NPLs.

But prior to the introduction of such service in the country the government should examine its possible outcome.  Will these agencies be able to pursue big loan defaulters who are otherwise very powerful because of their political links?

The debt collection agents might prove helpful in the case of small and medium scale debtors, but the large delinquent borrowers in all likelihood would remain beyond their reach. Banks themselves are unlikely to employ agents to chase big borrowers.

The government should examine first the pros and cons of the debt recovery issue and enact necessary law, covering operations of debt recovery agents.



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