Padma Bank wants 9 more years to pay Jiban Bima FDR

Padma Bank Limited has placed a plan before state-owned Jiban Bima Corporation that it would settle seven matured fixed deposits parked with the bank amounting to Tk109 crore over a period of seven years starting from 2023.

In the meantime, the bank will continue interest payment at 6%.

When Padma Bank, formerly known as Farmers Bank, was about to fail because of massive irregularities and corruption, four state-owned banks – Sonali, Janata, Agrani, Rupali – and the Investment Corporation of Bangladesh came to its rescue with capital support amounting to Tk1,215 crore.

The cash-strapped bank has no financial capacity to pay its dues though it resumed operation with a new name in September 2018.

The fixed deposits that Jiban Bima kept in the bank matured in August 2018. To cash out the deposits, the insurance company has written 31 times to it until last March, but the bank has been unable to honour the requests because of its poor financials.

In a letter to the Jiban Bima Corporation Managing Director Zahurul Haque on 22 June, Padma Bank Managing Director Ehsan Khasru said they would now renew the matured fixed deposit receipts (FDR) at 6% interest and pay principal amount plus interests from 2023 till 2029.

The Jiban Bima Corporation MD told The Business Standard, "We have accepted Padma Bank's offer as we see it as a better option for now to get our deposits back. If we resort to court for the recovery, it will take a long time."

"The Padma Bank managing director met me first and later gave me a written repayment plan," he said, adding that the bank is now in a rebuilding process and cannot settle the FDRs. That is why it has proposed the renewal of the matured deposits.

He also said, "Had we taken back the deposit money from Padma Bank, we might have kept it in another bank at the same 6% interest."

In the letter, Ehsan said, "We are not in a position to refund the FDR principal amount before FY23 owing to the constrained financial position. However, we will continue interest payments as before on maturity of the current term of the FDR and request you to continue FDRs for one year at 6.00% from 2020."

The Padma bank managing director also said, "We hope that we will be able to refund the principal amount of your FDRs in annual tranches starting from 2023 based on the financial position of the bank as per the forecasted growth potential."

Presenting its plan of paying out principal amount plus interest over the seven years till 2029, Padma Bank said interests on fixed deposits will be paid in full when the respective fixed deposits get matured in 2021 and onwards. 

"As for the fixed deposit's principal amount payment, we will start paying one fixed deposit each year from 2023. While making payment of a fixed deposit from 2023, we will take one single fixed deposit into account and arrange payment of 25% of principal amount in each quarter and thus we will make 100% payment of a fixed deposit each year," the letter said.

According to sources, in 2014-2015, Jiban Bima Corporation parked two term deposits worth Tk35.83 crore with the Mirpur branch of Padma Bank, three worth Tk40.56 crore with Motijheel branch and two worth Tk31.90 crore with Gulshan branch. 

The fixed deposits matured in August 2018, but Padma Bank did not return the principal amount to the state-owned insurance company despite repeated pleas. However, the bank has so far made interest payments amounting to Tk44 crore to Jiban Bima, the sources added. 

The Farmers Bank became a hotbed of lending anomalies in less than a year after its formal inception in 2013, making general depositors the sufferers. 

In October 2017, failing to control the bank's financial mismanagement, the central bank submitted a report to the parliamentary standing committee of the finance ministry.  According to the report, the bank did not have the capacity to pay its dues. The bank survived by taking deposits at high interests and borrowing from various other banks. Thus, the bank created a systemic risk in the entire banking sector, which could erode the confidence of depositors.

After that, depositors started withdrawing their money from the bank, resulting in a deep financial crisis for it, which prompted former home and planning minister Mohiuddin Khan Alamgir to resign from the bank's chairman post in November 2017. Mahabubul Haque Chishti, chairman and director of the bank's audit committee, also had to step down from his position. 

On 19 December that year, the Bangladesh Bank removed AKM Shamim, managing director of the bank, for his negligence and failure to operate the bank. 

The Anti-Corruption Commission filed a case over embezzlement and irregularities in loan disbursements, which is still sub judice.