How little known Rupashi Group's debt becomes Sonali Bank’s nightmare

A little-known garment manufacturer based in Narayanganj, Rupashi Group first secured a loan from state-owned Sonali Bank in 2008, with borrowing continuing in subsequent years.

Over the past 12 years, the group has rescheduled its loans seven times but has yet to repay the loans, now Tk465 crore, representing more than half of the outstanding loans issued by the branch. 

This debt has since been classified as non-performing, compelling Sonali Bank to make 100% provisions against it under banking regulations.

This revelation emerged through two separate investigations — one by the central bank's off-site supervision team and another by Sonali Bank. 

The Bangladesh Bank report alleged collusion between Sonali Bank insiders and the borrower, with irregularities such as granting Rupashi Group nearly 150% of its letter of credit (LC) value as a funded loan facility, a clear breach of banking rules. 

Also, the report found that Sonali Bank failed to recover the loan from the client's export earnings, further complicating the recovery process.

As of 31 May, among Rupashi Group's three subsidiaries, the largest share of debt, Tk254 crore, is held by Rupashi Knitwears, followed by Rupashi Fabrics Complex at Tk148 crore, and Salman Knit Composite with Tk63 crore, according to the reports.   

This debt originated in 2008 when Sonali Bank's Narayanganj Corporate Branch extended loans to the three companies. Soon after, the institutions began to default on their payments. 

The Business Standard on 22 October contacted Rupashi Group's Managing Director Mohammad Soharwardi, who requested to be reached the following afternoon due to illness. 

The next day, Executive Director Mohammad Mosharraf Hossain spoke on his behalf, stating that Rupashi Group should not be held accountable for its loan defaults, placing full responsibility on the bank. 

He noted that the group's business has been closed since February 2022 due to insufficient support from the bank. "Despite this, we have repaid Tk174 crore to Sonali Bank, significantly more than the original loan amount."

He claimed to have documentation to support these transactions.

Irregularities in loan extension

In several cases, Rupashi failed to make payments after opening letters of credit (LCs) for imports, which subsequently led to the creation of forced loans, according to the reports.

In certain transactions, the bank provided funded facilities on multiple LCs at rates of 152%, 148.92%, and 148% of the LC value. 

Moreover, Bangladesh Bank's report found that nearly 100% of Rupashi's export bills were repatriated, but Sonali Bank did not recover the funds from Rupashi's accounts.

The report described such activities as "direct looting of the bank's funds", noting that branch or bank management authorities were directly involved.

In this regard, Rupashi Executive Director Mosharraf Hossain acknowledged that a report from Bangladesh Bank includes such allegations. 

"Despite our attempts to clarify these issues with the inspectors, our explanations were not accepted," he added.

Collateral and asset valuation  

One of the major concerns raised by the reports was inadequate collateral against the massive loans. 

Although the group pledged assets worth Tk441 crore, a large collateral gap remains. Specifically, the report cites gaps of Tk107.78 crore for Rupashi Knitwears, Tk67.76 crore for Rupashi Fabrics Complex, and Tk31.28 crore for Salman Knit Composite.  

Sonali Bank initially accepted minimal collateral and progressively included additional assets — such as land, buildings, and machinery — to offset the rising loan value.

However, due to frequent rescheduling and restructuring, the debt ballooned, leaving the bank with insufficient security.

Raphi's Mosharraf Hossain said the claim of insufficient collateral is inaccurate. "According to the bank's records, there is adequate collateral." 

He added that they were unable to discuss the asset valuation with the firm recently appointed by Sonali Bank for assessment, a privilege they had enjoyed in previous instances.

Other irregularities 

Beyond defaulted loans, several other irregularities were documented in the report. 

For instance, Sonali Bank permitted bill purchases and discounting for Rupashi's back-to-back LCs without settlement, bypassing Bangladesh Bank's required approvals. 

Forced loans, rescheduled five times, allowed Rupashi to withdraw funds for non-business purposes like land acquisitions and construction projects. 

In some cases, the group obtained packing credit, or PC loans, despite failing to meet export requirements. 

The inspection report implicated at least five branch employees in these actions, identifying them as direct participants in the scheme.

Bangladesh Bank's warning  

The central bank sent a directive on 22 August 2022, instructing Sonali Bank to identify and take action against individuals involved in the irregularities surrounding Rupashi's loans. 

However, the bank has yet to take any administrative measures against responsible parties, causing concern among regulators. 

On 11 February 2023, Bangladesh Bank issued another letter to Sonali Bank's then-MD Afzal Karim, expressing concerns about the delay.

The letter urged Sonali to expedite its investigation and recovery processes, calling out Sonali's inaction as evidence of "weak internal controls". 

Although the directive mandated action by 14 March, no updates have been provided to Bangladesh Bank, leaving the loan recovery situation unresolved.

Rupashi Group's Mosharraf Hossain said that until January 2024, their loans were regular, and they had communicated to Sonali Bank, through letters, that repayments would not be possible after January. 

They also informed the managing director and chairman of Sonali Bank, as well as the governor of Bangladesh Bank, about their inability to continue repayments. 

"The letter to the governor on 4 October 2023 informed them that their business was being closed due to the lack of cooperation from Sonali Bank. Since February 2022, Sonali Bank had abruptly ceased all loan disbursements. A one-year extension for loan repayments was requested in the letter," said Hossain. 

"Despite requesting the bank's assistance to resume business operations, the bank did not respond," he added.

He further explained that there have been three instances of loan rescheduling and several restructuring efforts, each requiring Bangladesh Bank's approval. 

He also mentioned that Rupashi Group has filed a lawsuit in Narayanganj court seeking compensation.

Sanjoy Kumar Roy, deputy general manager at Sonali Bank's Narayanganj Corporate Branch, said efforts are underway to recover the defaulted loan by using all available legal measures. 

When questioned on whether Sonali had filed any lawsuits, Roy declined to comment.

Another senior branch official, speaking anonymously, said many regulations regarding loan distribution and recovery have not been followed, and continue to be overlooked.

He pointed out that several involved officials knowingly facilitated opportunities for the customer to misappropriate the bank's funds.

The official alleged that a former managing director of Sonali Bank played a key role in granting Rupashi favourable treatment, owing to a personal relationship with the group's managing director, Mohammad Soharwardi.

The preferential treatment continued even after the loan became non-performing, he said. "Subsequently, the group shifted its accounts to another bank, where too it defaulted."

A general manager at Sonali Bank's headquarters, speaking anonymously, told TBS that the claims made by Rupashi Group in their letter to the governor are untrue and fabricated. 

He stated that in 2021, the group had taken an excess loan of Tk66 crore by concealing information, leading to the cancellation of their benefits. 

"Although some payments were made later and their loan was rescheduled, they have still failed to make regular instalments," added the official.