Banks struggle to recover Tk86,000cr as buyers shy away from mortgage auctions 

As of August, banks and financial institutions have filed around 9,400 applications with Artha Rin Adalats (Money Loan Courts) nationwide, seeking possession certificates for mortgaged properties tied to nearly Tk86,000 crore in defaulted loans, after repeated auctions failed to draw bidders, Supreme Court data shows.

Infographics: TBS

Auctions fail, banks seek possession

Bank officials say auctions frequently collapse because properties are overpriced, entangled in family or inheritance disputes, or include government (khas) land. After three failed auctions, banks typically petition courts for possession, enabling them to use, rent, or eventually sell the properties.

One recent case illustrates the challenge. 

In May, Agrani Bank won a Tk156 crore default case against Gazipur-based Rupali Builders, securing court approval to auction six acres of mortgaged land. But three consecutive auctions – in June, July, and August – drew no bidders. The bank has now applied for a possession certificate.

Agrani Bank's lawyer Tariqul Islam explained that the land was registered under multiple family members and partly included khas land, discouraging buyers. "On top of that, the bank's inflated valuation of mortgage property far exceeded the real market price – Tk156 crore versus Tk70–75 crore. Naturally, no one wanted to buy," he said.

He added, "The mortgaged deeds are with the bank, and if anyone buys the land through auction, the deed will be transferred. But legal complications arise in securing proper mutation, as the owners did not acquire the land through inheritance and showed possession in various ways. Moreover, about one acre of the six is government land. For these reasons, bidders have stayed away, though many inquired beforehand."

"The defaulter company and its directors are influential, raising concerns over whether a buyer could actually maintain possession if the land were purchased," the lawyer added.

The Comptroller and Auditor General (CAG) had earlier flagged the loan as irregular, noting weak oversight and inflated collateral values.

The report stated, "In 2012, the company [Rupali] got approval for a loan of about Tk91 crore. The collateral included six acres of land, buildings, and additional security (Mouza-Vogra, Gazipur), valued at approximately Tk40.95 crore. The value of the additional collateral was far less than the loan liability. Furthermore, there was a significant lack of proper oversight by the authorities in the loan approval and disbursement process."

Growing number of cases

Between January and August this year, Dhaka's seven Artha Rin Adalats received 476 possession applications involving Tk19,000 crore in defaulted loans. In 2024, the figure was 620 cases (Tk18,000 crore), compared with 511 cases (Tk11,000 crore) in 2023.

Across the country, nearly 76,000 cases were pending in 74 money loan courts as of 31 August, with possession requests linked to Tk86,000 crore in bad loans.

Property auctions fail to attract buyers

In 2024, Dhaka's Artha Rin Adalat-4 delivered verdicts in 123 loan default cases involving around Tk13,000 crore. In each case, the court ruled in favour of the banks, allowing recovery through auctioning the mortgaged properties.

An official of the court told TBS that after the 123 verdicts, banks applied to transfer ownership of mortgaged properties to their own names in 81 cases, as no bidders came forward despite auction calls. 

The High Court stayed 17 verdicts following writ petitions by defendants. Eight cases involving small defaulted loans were executed through auctions. For the remaining 17 cases, the banks have not provided any updates, the official added.

Small cases sometimes succeed. Janata Bank once auctioned off property to recover just Tk3 lakh. In another instance, AB Bank managed a partial recovery after auctioning a Bhatara house in 2006.

The official, who has been serving at the Artha Rin Adalat for nearly 11 years, said, "Such small auctions do take place occasionally, but most large loan recoveries through auction fail," he said.

In another verdict, the court ruled in favour of Pubali Bank's Shonir Akhra branch to recover Tk64 crore in defaulted loans. However, after three unsuccessful auction attempts with no bidders, the bank transferred ownership of three mortgaged houses into its own name. According to the bank's report submitted to the court, the houses have since been rented out to a company.

High-profile failures

Major scandals show the same pattern. A few years ago, the name of Hallmark Group surfaced in connection with Sonali Bank's Tk4,000 crore loan scandal. The group siphoned off the funds through its various entities under different names. 

Among these loans, Sonali Bank, through court orders, secured ownership and possession of 3,834 decimals of land in Gazipur against Tk587.88 crore loans taken by Hallmark Fashion Ltd. Hallmark Fashion's Managing Director Tanvir Mahmud and Chairperson Jesmine Islam had mortgaged the land to obtain the loans.

Sonali Bank's panel lawyer, Jahangir Hossain, said, "The bank has now left those properties unused. A boundary wall and signboard in the bank's name have been put up, but the land is not serving any real purpose."

A few years ago, the name of HRC Group Chairman and CEO Sayeed Hossain Chowdhury appeared on Standard Bank's list of defaulters. His company, HRC Shipping Lines in Chattogram, owed the bank Tk121.43 crore, including interest. 

Standard Bank filed a case with the Artha Rin Adalat and won the verdict. However, despite multiple attempts to sell the mortgaged property through auctions, no buyers came forward. The bank later applied to the court and took possession of the mortgaged assets.

Valuation distortion another reason 

Mortgaged properties often fail to sell at auction because government-set mouza rates are far below market prices, making registration complicated.

Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank, said, "Another key reason mortgaged properties fail to sell at auction is that the government-fixed value, or mouza rate, is far below the market price."

For example, a flat worth Tk10 crore in Gulshan has a mouza rate of less than Tk50 lakh. Even if someone wants to, registering a property at a value higher than the mouza rate is complicated. Everyone sees and knows this, but no solution has been reached, he said.

"Before 5 August 2024, the day Awami League's 15-year rule ended in a mass uprising, many rules were overlooked when buying or selling high-value properties. But now, no one dares to break the law to purchase such assets," said the banker.

Successful auctions, but partial loan recovery

A businessman named KM Ahmed took a Tk50 lakh loan from AB Bank's Karwan Bazar branch, which later swelled to Tk2 crore with interest. In 2003, an Artha Rin Adalat in Dhaka handed over to the bank a mortgaged house in the capital's Bhatara area.

Mohammad Nizami, the bank's lawyer, told TBS, "The house was sold in 2006, and the bank managed to recover Tk1.40 crore. The remaining amount was written off."

Banking and company law expert Emran Ahmed Bhuiyan told TBS, "After an auction verdict or order, bidders usually do not show up. As a result, banks take possession of mortgaged properties through the court, and either sell them or keep them, recovering only the principal amount. Much of the outstanding balance often remains unrecovered."

He added, "According to the Artha Rin Adalat Act, banks must file a new case to recover the remaining dues. In such cases, courts sometimes order the auction of properties beyond the mortgaged ones. But in most instances, defaulters file writ petitions with the High Court to stay these cases, which then remain unresolved for years."

The issue of banks failing to recover defaulted loans through collateral sales has also been highlighted in several studies. 

Recovery rates remain dismal

A 2023 Bangladesh Institute of Bank Management (BIBM) study found banks recover only 12.77% of defaulted loans through mortgaged asset sales. Most recoveries cover only principal amounts, while accrued interest remains unpaid.

What's the solution?

Khandaker Golam Moazzem, research director at the Centre for Policy Dialogue (CPD), told TBS that mortgaging immovable property against loans is recognised worldwide as a secure practice. But in Bangladesh, in most cases, borrowers resort to fraud involving mortgaged assets – often with the collusion of dishonest bank officials.

He said banks must be diligent in verifying properties before accepting them as collateral. Under the Bank Company Act, a charge must be created when mortgaging any property, with Bangladesh Bank responsible for regulation, but this provision is often overlooked.

At a certain stage of loan recovery, banks obtain court orders to sell mortgaged properties through auctions. In most cases, even then, the recovery falls short, forcing banks to file new cases, he continued.

"The only solution now is for banks to carefully verify all documents, market value, and information of a property before accepting it as collateral. Suppose the Bangladesh Bank also ensures verification of the property's authenticity before approving loans. In that case, this problem will ease to some extent, and banks will find it easier to recover their money," Moazzem added.