The bank now wants to write off Tk1,211 crore default loans to clean up the balance sheet as part of its plan to resume full-fledged lending from March
Once cash-strapped, Padma Bank saw a turnaround in deposit inflow in the last one year and now has a surplus of cash, thanks to its offering high interest rates and the goodwill that majority of its shares are now owned by the government.
But the bad news: The bank could not recover a dime from 412 borrowers with whom lie Tk1,211 crore. The cheques many of them gave to Padma have bounced, putting the bank back to square one.
The bank now wants to write off the Tk1,211 crore default loans.
During the last one year, the bank filed 636 cases against borrowers who had given it such valueless cheques.
So, one year since the troubled bank, rocked by loan scams, was bailed out by the government, it has not been able to overcome its default loan trouble that increased to 72 percent in September last year.
Even then Padma hopes to resume its lending from March because its surplus cash is a liability that it wants to turn into an asset.
Padma's loan recovery drive can at best be described as a futile chase after wild birds.
Take Atlas Greenpack Limited as an example. It is one of the top defaulters that had taken Tk80 crore from Padma Bank.
The bank last year filed a case against the client as its cheque for instalment payment was dishonoured – which is a criminal offence.
Following a strong move to bring defaulters to book, Padma Bank last year secured 93 court warrants against the defaulted borrowers and nine of them were arrested.
In December last year, in a letter to the Bangladesh Bank, the bank said it had identified the unrecoverable loans and decided to write them off to clean up the accounting book.
The central bank, however, did not respond to the request as the bank is not capable of maintaining the 100 percent provision required for loan write-off. It turned down another request for provision waiver against written-off loans.
Padma Bank has already been in provisioning deferral of Tk1,213 crore.
On top of that, it has a capital shortfall of Tk183 crore as of September last year, according to a statement of the bank.
Failing to recover the loans, the bank moved to write them off to clean up the default loan accounting book so that it can start the lending afresh from March this year, said Md Ehsan Khasru, managing director of Padma Bank.
The bank is now planning to sell out the bad loans to an asset management company at a discounted price, he said.
The government has a plan to set up an asset management company to take over toxic loans from banks.
Ehsan Khasru said although loan recovery remains slow, the bank has made remarkable progress in deposit collections, thanks to high interest rates and restoration of public confidence after partnering with state-owned banks.
After rebranding from the previous Farmers Bank, Padma embarked on a fresh journey on January 29, 2019 to turnaround from a sorry state – managing to collect deposits of Tk400 crore in the last one year.
The bank offered above 12 percent interest rates, the highest in the market, to attract depositors. However, Padma is now trying to adjust the rate with the government's move to cap it at six percent from April 1.
Now the bank has around Tk600 crore excess cash which remain invested with other banks, said Khasru.
Currently, it has been lending only against fixed deposits at a small scale.
He said lending will not be a focused business for the bank and it will emphasise on transaction-based banking, such as mobile banking.
The bank has already applied for mobile banking and agent banking license, he added.
Established in 2013, the bank collapsed in just less than three years of its coming into operation due to severe financial irregularities.
More than Tk3,500 crore was siphoned off from the bank, according to the Bangladesh Bank.
Muhiuddin Khan Alamgir and Md Mahabubul Haque Chisty, the then board chairman and chairman of the audit committee respectively, were forced to resign from their respective posts in 2017.
As part of its rescue plan, the government in 2018 injected Tk715 crore into the bank through four state-owned commercial banks – Sonali, Janata, Agrani and Rupali – and the Investment Corporation of Bangladesh.