Most people, rightly or wrongly, hold a strong opinion that any organisation owned and operated by the state in Bangladesh is inefficient and a hotbed of corruption. The people in the government do not have sufficient grounds to counter such a judgment. However, there must be some exceptions. The Basic Bank Limited until the recent past was one such exception, in terms of better management and profitability. It was, in fact, a shining example how a state-owned entity could also run efficiently when scores of others belonging to the same fraternity had turned out to be a huge burden on the public exchequer and thus the government.
But such a well-managed bank is now in deep troubles just because of poor management and alleged highhandedness of some members of its board of directors. A substantial volume of loan, sanctioned and disbursed in recent years in violation of banking rules and norms, has become classified, taking a toll on the financial health of the bank that has been operating with a small number of branches since its birth. Moreover, there were, allegedly, gross irregularities in the promotion and appointment of officials of the bank.
Soon after unearthing of the worst-ever scam in the country's banking history involving the Hall-Mark and the Sonali Bank, a state-owned bank, the central bank had detected major irregularities in loan disbursement in the Basic Bank. Investigation by the Bangladesh Bank (BB) in 2012 revealed the alleged irregular sanctioning and disbursement of more than Tk.25 billion among 67 clients. Besides, funds worth Tk.45 billion were allegedly taken out of the bank through fraudulent means with the help of some of its board members.
The central bank took a few corrective measures, including the appointment of an observer and the striking of a memorandum of understanding (MoU) with the Basic Bank. The MoU incorporated steps aimed at strengthening the financial health of the latter. But all these steps failed to deter the management of the bank from indulging in further irregularities. And the central bank, obviously exasperated with the developments inside the Basic Bank, has now swung into action. Invoking the provisions of the Bank Company Act, it removed last week the Basic Bank managing director and suspended loan operations by three branches from where most irregularities in loan disbursement had taken place.
As the BB has no legal authority to take actions against the board of any government-owned banks, it has referred the issue to the ministry of finance (MoF) to initiate appropriate measures and help the Basic Bank regain its past glory. Bankers do need to exercise caution in lending activities and to make available loans to clients doing their due diligence. Any deviation from this makes them liable to actions in accordance with the law. But irregularities in the sanctioning and disbursement of large volume of loans irregularly can hardly be indulged in, without the involvement of the entire board of directors or a few directors who tend to assert authority beyond the legal bound. The finance minister has said that the Basic Bank board would be reconstituted. All attention will, naturally, now be focused on how he does it.