Is it possible to identify 'willful defaulter'?

Bangladesh Bank's March 12 circular aimed at identifying 'willful defaulters' has sparked significant attention within the banking sector. Economists and bankers are closely monitoring the situation, with many hopeful that it will lead to the apprehension of those deliberately defaulting on loans. Economists have persistently advocated for two key measures to tackle the escalating Non-Performing Loan (NPL) crisis: stringent action against willful defaulters and comprehensive reforms to reduce overall NPL levels to a sustainable threshold.

Economists have long stressed the necessity of establishing an independent banking commission to restore stability in the banking sector. Simultaneously, they have called for stringent actions against willful defaulters. However, this demand has largely gone unheeded until now. The recent action by Bangladesh Bank is a welcome step in this direction. It remains to be seen what consequences will befall the willful debtors as a result of these measures. Despite some optimism, many remain skeptical about the effectiveness of this initiative. Only time will reveal the true success of identifying willful defaulters, making it premature to draw definitive conclusions at this stage.

The title of the issued circular is, 'Identification and finalization of willful borrowers and action taken against them'. The question arises: can unwilling individuals receive bank loans? It is the willing individuals who, through various processes, obtain approval for loans from banks. Hence, the title of the circular is not entirely accurate; rather, the word 'willful borrowers' should have been 'willful or habitual loan defaulters'. If the title of the circular itself is incorrect, then how will the circular be implemented in reality?

The circular states that despite having the capability, any individual, organisation, or company failing to repay loans or obtaining loans through fraud, coercion, or false information will be designated as a willful defaulter. To facilitate the identification of willful defaulters, a separate unit must be established under the supervision of a management executive, two grade junior than the MD, by April 9th. Any new customer suspected of being a willful defaulter must be verified within 30 days. If someone is identified as a willful defaulter, they will be given 14 days to provide a statement in their defense. If the borrower's statement is not deemed satisfactory by the bank or if they fail to present themselves for defense, the bank may take a final decision independently. The concerned individual or organisation must be informed within 7 days of being designated as a willful defaulter. If the borrower is dissatisfied, they may formally appeal to the Bangladesh Bank. The decision taken by the Bangladesh Bank in this regard will be considered final.

Those identified as willful defaulters will not receive any kind of interest or facility freeze on their loans. Their loan accounts will not be reconsidered for rescheduling. They will remain designated as defaulters until the entire loan amount is repaid, and during this time, they will not be able to borrow from any other bank or financial institution. Bangladesh Bank may also impose travel bans and revoke trade licenses for willful defaulters. Willful defaulters will be barred from opening any new company. They will not receive any national awards or honors. A list of willful defaulters will be sent to the authorities responsible for registering vehicles, homes, land, and apartments. Even if a willful defaulter repays the entire outstanding loan amount, they will not be eligible for appointment as a director or executive of any bank or financial institution for five years. If willful defaulters do not repay their outstanding debts to the bank despite their close proximity, the bank may file a case in the appropriate court for debt recovery.

The subjects addressed in the circular issued by Bangladesh Bank are indeed appropriate; however, the question arises regarding how these directives will be implemented. Any law requires political commitment and sincerity for implementation. Do we have such commitment? Those who are willful defaulters are enemies of the nation. Because they are playing with the hard-earned money of ordinary people. It is noteworthy that banking business is unlike other ordinary businesses. The banking business is operated on the hard-earned money of ordinary people. Most of the bank's invested funds come from ordinary depositors. Many former governors of Bangladesh Bank, along with the country's economists, have said that strong political commitment is needed first and foremost to identify loan defaulters, especially willful defaulters. Without political commitment, initiatives of this kind are never effective and successful. Laws are enacted to protect the interests of the majority; however, most of the recent legislative amendments in the banking sector have catered to loan defaulters and unscrupulous individuals. Therefore, unless these legislative amendments are not repealed, any attempt to identify willful defaulters may not be realised. The government has announced a zero tolerance policy against corruption; however, due to lack of political commitment, corruption today has reached an unprecedented level, which is easily noticeable. The word zero tolerance against corruption has now turned into a subject of mockery.

The acquisition of loans from the banking sector generally requires political influence and economic power. Those companies that have taken large loans can confidently claim that they did not use political influence or engage in illegal spending during the loan acquisition period. Illegal spending in the banking system can be turned around overnight. There are four categories of employees in banks or other nationalized institutions. Among them, there is one category of employees who are considered to be highly intelligent. They do not engage in bribery. Their policy is to work and receive salaries; if someone offers a bribe, they refuse it. That is, they sit hoping to get a promotion without doing any work. Another category of employees do not work at all and do not accept bribes either. If they can manage to pass the office hours somehow, that's enough. And then there is a category of employees who do not accept bribes themselves; however, if someone else accepts a bribe, they do not create any obstacles. Rather, they assist if possible. The fourth category consists of employees who neither accept bribes themselves nor allow others to accept bribes. They are the ones who face the most danger. Corrupt employees often label these employees of the fourth category as anti-government and harass them. Without the assistance of bank employees, no "bad loans" can be created. If loan proposals are evaluated and scrutinized properly at various stages of approval, then no individual or company can acquire loans by circumventing everyone's scrutiny. Many times, even employees at lower levels, despite their intentions, are compelled to support loan proposals for inappropriate individuals or organizations under the directions of higher-ranking officials.

The acquisition of loans from the banking sector generally requires political influence and economic power. Those companies that have taken large loans can confidently claim that they did not use political influence or engage in illegal spending during the loan acquisition period. Illegal spending in the banking system can turn around many things. There are four categories of employees in banks or other nationalised institutions. Among them, there is one category of employees who are considered to be highly intelligent. They engage in bribery. Their policy is to work and receive salaries. They do not work without bribe. Another category of employees do not work at all and do not accept bribes either. If they can manage to pass the office hours somehow, that's enough. And then there is a category of employees who do not accept bribes themselves; however, if someone else accepts a bribe, they do not create any obstacles. Rather, they assist if possible. The fourth category consists of employees who neither accept bribes themselves nor allow others to accept bribes. They are the ones who face the most danger. Corrupt employees often label these employees of the fourth category as anti-government and harass them. Without the assistance of bank employees, no "bad loans" can be created. If loan proposals are evaluated and scrutinized properly at various stages of approval, then no individual or company can acquire loans by circumventing everyone's scrutiny. Many times, even employees at lower levels, despite their intentions, are compelled to support loan proposals for inappropriate individuals or organisations under the directions of higher-ranking officials.

If we are to identify willful defaulters at this stage, the recent changes made in the banking laws must first be repealed. A few years ago, the opportunity to reschedule loans for 10 years with a one-year grace period and a 2 percent cash down payment was provided. According to a source, a total of 38,000 individuals and institutions took advantage of this opportunity to reschedule their loan accounts. Most of those who availed themselves of this opportunity to reschedule their loan accounts are willful defaulters, but they are politically powerful. These 38,000 individuals and institutions are not considered defaulters according to the current banking laws. So, how will you identify willful defaulters? You cannot label them as defaulters. Loan rescheduling is merely a reprehensible technique to free the borrowers from the label of defaulters. No defaulter can participate in any national parliament or local government elections. But it can be observed that just before the election, defaulted loan accounts were regularised for a certain period by making a specific amount of down payment. As a result, they no longer face any hindrance in participating in elections. Therefore, to identify willful defaulters, loan account rescheduling must be stopped. If the practice of rescheduling defaulted loan accounts continues unchecked, they will exploit loopholes to get themselves out of trouble.

Bank employees themselves will undertake the primary responsibility of identifying willful defaulters; however, if anyone among them was responsible during the approval of the relevant loan, then will they want to label that loan account holder as a willful defaulter? This raises questions about their accountability. Employees of one category of banks provide various forms of advice to loan recipients through various means. These employees will tell the loan recipient how they can remain exempted from being identified as willful defaulters from the list.

If the government or the Bangladesh Bank truly wants to identify willful defaulters, then they must first take a firm political commitment. Those who are willful defaulters should be ensured that they cannot take refuge in any political party. Furthermore, under the leadership of a judge, an independent and powerful commission can be formed to identify willful defaulters and recover overdue loans. This commission can be formed by coordinating with tested, honest, and skilled personnel who will fulfill their responsibilities impartially. Bank employees who have been involved in loan approvals must also be brought within the purview of accountability. The responsibility for willful defaulters does not lie solely with the loan recipients but also with the bank employees.

If the government or the Bangladesh Bank truly wants to identify willful defaulters, then they must first take a firm political commitment. Those who are willful defaulters should be ensured that they cannot take refuge in any political party. Furthermore, under the leadership of a judge, an independent and powerful commission can be formed to identify willful defaulters and recover overdue loans. This commission can be formed by coordinating with tested, honest, and skilled personnel who will fulfill their responsibilities impartially. Bank employees who have been involved in loan approvals must also be brought within the purview of accountability. The responsibility for willful defaulters does not lie solely with the loan recipients but also with the bank employees.

Bank officials will indeed carry out the primary responsibility of identifying willful defaulters. However, if among those tasked with this responsibility, there is someone who was in charge at the time the respective loan was sanctioned, they may hesitate to identify the borrower as a willful defaulter. This hesitation arises due to the potential questioning of their own responsibility in the matter. Additionally, there is a group of corrupt bank officials who assist borrowers in various ways. These officers advise borrowers on how to avoid being labeled as willful defaulters.

The way Bangladesh Bank has initiated the identification of willful defaulters doesn't seem capable of achieving the intended goals. So, first, we need to decide: do we really want to identify willful defaulters and take strict measures against them? Or do we want to turn a blind eye to them in the eyes of the public?

Author: Retired General Manager, Bangladesh Development Bank PLC and Writer on Economic Affairs