A counter narrative for state owned banks
Published : Sunday, 3 June, 2018 at 12:00 AM Count : 1032
Public perception on our state owned banks (SOBs) does not originate from any sense of apathy. Beleaguered banking sector has a rising default culture, a weak central bank leadership; money laundering and the finance ministry's excessive interference have greatly impeded the functioning of the banking sector in recent years.
This is the screenplay of state banks prevailed in public minds and without question it needs to be addressed by the government. But this is not the entire scenario about SOBs or the whole truth is enshrined in it. There are some other things which are being ignored till today and are not in any way less countable in creating cavity in SOBs' function. It seems that the policy designed by the finance ministry is facilitating the way for doomsday of SOBs. That is to be thought out.
Government is staunch follower of market economy. One of the basic principles of it is to have an equal level playing field for all market players and so does in financial sectors. Then why SOBs are being step brotherly treated by the finance ministry? Reasons are unknown why private banks becoming dear to government. SOBs provide nearly 40 types of services to public on behalf of government without charging any fee.
If the government allows them to charge at least 1.0 per cent commission on the services, the banks can earn a significant amount of money which can help them replenish their capital deficit to some extent. In contrast, if such services are entrusted with private banks, extra service charges will have to be paid for. All of them notion goes opposite to the spirit of the concept of market economy. Bosses of various SOBs in a recent meeting proposed to Banking Division of finance ministry about their free services.
To harness banking in line with market economy, government has taken a wide reform programmes during 30 years. The most noted thing is corporatisation of all state owned banks. That means, they have been made "Public limited company." With exception of central bank and some foreign banks, all banks in Bangladesh are public limited company. Before that, government banks were run under "Banks' nationalisation order 1972." "Company Act 1984" was non-functioning in public banks. But the government has changed it.
From now on all banks irrespective of public or private banks will be run by company Act 1984 and accordingly "Memorandum of Association" and "Articles of Association" will be their legal support to run. The purpose of such changes was to create a level playing field for all banks for their competition and making profit. The government is retreated from the abiding law. Banks are not given to work under company Act 1984. Rather they have been brought under banking division, a division of finance ministry. That means banks are being regulated by bureaucracy.
Appointment of MD, DGM, GM and all other higher posts, their accountability and punishment- everything is determined by bureaucrats in banking division of the finance ministry. Board of directors is only the showcase without power. Banks' functional autonomy is zero. They are liable to bureaucrats. At their behest loans are designed and determined. But when banks do wrong, the board has to bear total responsibility. This contradiction plagues the entire SOBs.
At one side there is a free economy, in contrast state banks are kept falling in bureaucratic entangle and are being controlled. So this dilemma is squeezing state banks and bringing an impasse in financial sectors. Why bank's MD will be complying with board of directors, rather he will salute to banking division of the finance ministry. We want company Act 1984 to be implemented in full. If any reform is needed, that is to be done for the interest of the full autonomy of state owned banks (SOBs). When loan is sanctioned at pressure of bureaucracy, why banks will be held liable and accountable for its non-performing. How far banks can apply their apt wishes and discreetness. Finance ministry's excessive interference time has come to rein in.
Why SOBs would be capital starved and need to mitigate appetite by budgetary provision? Why not they are running after second option and finding second avenues? They are often advised by experts to go to bond market -- an integral part of the money market. In the last two decades, we have seen a series of measures to create a vibrant bond market. While all most all the elements of an active bond market have long been present, these measures are yet to yield any effective outcome.
The bond market is now only about 5.0 per cent of the country's Gross Domestic Product (GDP). The bond market is a part of money market. Its other part is equity market which is popularly known as stock or share market. Money market and capital market together form the financial market. Bond is fundamentally a debt instrument and bond market is also called debt market. To put it in another way, investment in bond means invest in debt. Any government or corporate body may issue a bond to take a loan from the market.
Investors or those who purchase the bond will get back the principle amount with a fixed or preset rate of interest after a certain period or on maturity. That is why bond is also known as fixed income security. Latest statistics of central bank shows that the total turnover of the secondary of the T-bills and T-bonds stood at Tk 282.91 billion in 2017 while the value was Tk 514.08 billion in 2016. So SOBs have wide scope to bond market as their second options for recapitalising their deficit. Tame SOBs will fail to jack up financial sector so far market is concerned.
The writer is a retired Professor