A huge provision shortfall of state-owned Janata Bank has put the entire banking sector in jeopardy.
Until December 2020, it did not have any shortfall, but in the next three months the shortfall of money kept aside against default loans stood at Tk5,255 crore, according to a Bangladesh Bank report on default loans.
The fund kept with banks against non-classified and default loans is called provision or reserve.
At present, the provision for non-classified loans is 0.25% to 5%. And for default credits, the rates are separate for different categories. If credits are sub-standard, the rate is 20%; if doubtful it is 50% and for bad loans the provision rate is 100%.
If there is any provision shortfall in a bank, it fills the shortage with its capital.
Though Janata Bank had a huge provision shortfall, its capital adequacy fell short of only Tk416 crore by the end of March. In December, the figure was Tk5,500 crore.
On this, an official of the central bank said that since state-owned banks gave free services to the public on behalf of the government, they were given more time to mitigate the shortfall, which was known as deferral. That was why, Janata Bank's capital shortage was much less than its provision shortfall in March.
Janata Bank's Managing Director Abdus Salam Azad could not be reached by phone for comments.
Due to the provision shortfall of Janata Bank, govt banks saw their combined provision shortfall double to Tk10,561 crore. It was close to Tk5,000 crore in December.
The crisis of Janata Banks has spilled over to the entire banking sector, taking the provision shortfall of the entire sector, including private entities, to Tk5,264 crore. It was only Tk123 crore in December.
By March end, 11 government, private, foreign and specialized banks had provision shortfall.
According to the BB report, bad loans jumped by about Tk6,000 crore to more than Tk 83,000 crore between December and March.
About 88.17% default loans turned into bad loans by March, which was 87% in December.
The recovery of bad loans is very complex and needs a long legal procedure to complete. Often those are never recovered.
If bad loans are not recovered in three years, they are written off.
Banks have to file a case with money loan court to recover bad loans before they write those off.
A bad loan up to Tk2 lakh can be written off without filing a case.