Tk92,000cr default loan cases resolved with just 25% recovery

Money loan courts, set up to resolve financial disputes, have so far disposed of 1.55 lakh cases, but banks have only been able to recover 25% of their defaulted loans, amounting to Tk92,211 crore.

Bankers have attributed the poor recovery of the non-performing loans to the overvaluation of mortgaged assets and various irregularities in loan disbursements.

According to a central bank report, banks recovered Tk23,328 crore from the resolved cases till June this year.

Among the defaulted loans, the highest amount, Tk58,014 crore, belongs to state-owned banks, followed by Tk31,031 crore for private banks.

A senior official at the central bank said that in many cases, when borrowers pass away, the loans are settled with the available collateral, and when companies go out of business, banks are content with recovering whatever they can.

"Banks often collaborate in lending, take collateral that is lower in value compared to the loan, and sometimes overvalue the same collateral through repeated valuations. Consequently, when loans are defaulted on, recovering the principal becomes a challenge.

"In many cases, banks maintain collaboration in lending. The collateral they take against the loan is found to be very low compared to the value of the loan. In addition, the same collateral shows overvaluation by repeated valuations. When the loan is defaulted, the principal of the loan cannot be recovered," he added.

According to the report, compared to December 2022, there has been an increase of 351 cases till June 2023, and the amount of money claimed in these cases has increased by Tk11,391 crore.

At the end of December 2023, there were 72,540 cases in the Artha Rin Adalat, and the amount of claims in these cases was Tk178,277 crore.

Among the pending cases, the largest amount of money, Tk75,973 crore, belongs to state-owned banks, followed by Tk95,936 crore of private banks, Tk3,918 crore of foreign banks, and Tk2,448 crore of specialised banks.

Ahsan H Mansur, chairman of Brac Bank, told The Business Standard that cases involving huge amounts of money have been settled in money loan courts, but the recovery is very low, indicating the weakness of the banking system here.

"Banks do not lend to good customers. Due to this, institutions defaulted after some time," he added.

Additionally, the mortgage that is held against lending is overvalued. After a few days, many institutions go bankrupt or borrowers die, and then there is no chance of collecting the debt. It has been seen that only a scant amount can be recovered by selling the mortgages, said Mansur, also executive director of the Policy Research Institute. 

According to data from the finance ministry, since the establishment of the money loan courts in 2003, 228,418 cases have been filed till December 2022. The amount involved in these cases was Tk270,488 crore.

At the end of 2022, the number of cases was 222,348. At that time, the amount of money claimed in these cases was over Tk2.49 lakh crore.

At the end of March this year, the amount of defaulted loans by the country's banks, excluding the accounts withheld with the money loan courts, stood at Tk1.31 lakh crore. In December 2022, it was Tk1.20 lakh crore.

Syed Mahbubur Rahman, managing director at Mutual Trust Bank, told TBS that no matter how many times the customer's loan interest rises, banks cannot demand more than three times in court.

"Besides, many defaulted loan cases are not properly documented, due to which the court disposes of these cases," he added.

He also said banks are seen to overvalue collateral assets during lending. Then auctioning through the court shows that the value of the property is very low. In this case, much less money is available than the original loan.

Meanwhile, according to court sources, there are more than 10,000 writ cases in the High Court regarding defaulted loans. Through this, many have received suspensions from the court. As a result, banks are not getting money back from these borrowers and are not able to mention their names in the list of defaulters.

When asked about the matter, Mezbaul Haque, spokesperson for the Bangladesh Bank, said, according to a court verdict, banks try to collect the money. Accordingly, when borrowers do not have sufficient security, they will still have to repay the money.