How Deshbandhu Sugar Mills collapsed under heavy bank debt

Deshbandhu Sugar Mills Ltd, a sugar industry pioneer in South Asia, collapsed with a hefty debt burden that forced it to shut down operations, leaving eight lenders exposed to over Tk3,300 crore in outstanding loans. 

According to Bank Asia, one of the eight lenders, and its internal inspection findings, funds were diverted to Deshbandhu's sister concerns, creating an equity shortfall of over Tk1,300 crore as of June 2023. This means the company now has no remaining equity, and the banks are unlikely to recover the Tk1,300 crore even after selling its assets.

An equity shortfall occurs when a company's liabilities exceed its assets, meaning the company effectively has negative net worth.

In this context, Bank Asia had reported Deshbandhu Sugar as a "wilful defaulter" to the Bangladesh Bank several months ago after finding "fund diversion." The central bank's policy committee also rejected the company's loan rescheduling proposal, citing the "wilful defaulter" status.

Infographics: TBS

However, following an appeal from the Deshbandhu Group, the Bangladesh Bank has instructed Bank Asia to withdraw the wilful defaulter report – a move which has raised questions among bankers about the effectiveness of the wilful defaulter framework, as the same bank board that reported the client must now approve its removal.

When contacted, Sohail RK Hussain, managing director of Bank Asia, told TBS the bank had filed a criminal case against the borrower after its internal inspection revealed that sales proceeds were missing against working capital. Their internal inspection found that the business had "diverted funds" from cash flow to its seven sister concerns instead of repaying bank loans. 

"The company has no current assets against a bank liability of Tk3,320 crore. We have been informed that Deshbandhu Sugar has been temporarily shut down since at least January 2025," he added.

Bank Asia had previously rescheduled Deshbandhu's loans four times, but the company failed to continue payments and defaulted again. The bank also said it had sought travel bans on the business owners, Golam Mostafa and Golam Rahman, through the court. 

Other banks exposed to Deshbandhu's loans include Southeast, Mercantile, NCC, First Security Islami, Agrani, Social Islami, and Islami Bank. 

Meanwhile, First Security and Social Islami have merged with three other weak banks, while Islami Bank continues to struggle with huge defaulted loans exceeding Tk 1 lakh crore.

Deshbandhu Group, however, did not comment on the allegation of fund diversion.

When contacted, Deshbandhu Group Managing Director Golam Rahman said he is sick and unable to talk.

Additional Managing Director Brig Gen (Retd) Zakir Hossain said they plan to reschedule their loans by this December, as the central bank has already instructed Bank Asia to lift the wilful defaulter status. 

When asked why the business was unable to repay the loans, he said he could not explain. He also declined to comment on how Deshbandhu Group continued investing in sister concerns despite being unable to service its debt.

The account performance of Deshbandhu Sugar began to deteriorate in 2012, and the company started rescheduling loans from 2013, according to banks. 

However, in 2024, the Deshbandhu Group began setting up a 100% export-oriented jumbo bag manufacturing plant in Narsingdi's Palash upazila with an investment of Tk300 crore.

The group proceeded with the new plant even as another sister concern, Deshbandhu Polymer Limited — a manufacturer of polypropylene (PP) woven bags for the local market and exports — was incurring losses. 

In a qualified audit opinion for the year ended 30 June 2025, the auditor noted that Deshbandhu Polymer reported sales of Tk20.48 crore against a cost of sales of nearly Tk30 crore, resulting in a gross loss of Tk9.45 crore. The gross loss margin of 46.2% is unusually high for the company's line of business and raises concerns about the appropriateness of inventory valuation and the allocation of manufacturing costs.

Why BB instructed lifting Deshbandhu's wilful defaulter status

Bank Asia reported Deshbandhu Sugar Mills as a "wilful defaulter" to the Bangladesh Bank in December 2024, following the central bank's reporting criteria. Subsequently, the policy committee of the Bangladesh Bank rejected Deshbandhu Group's rescheduling proposal in May 2025.

However, on 8 December, Bank Asia received a letter from the Bangladesh Bank instructing the bank to take necessary measures to lift the wilful defaulter status of Deshbandhu Sugar Mills. The letter cited the customer's goodwill and intent to repay the loans as the reason for removing the company from the wilful defaulter list.

The instruction also required the bank to update the customer's Credit Information Bureau (CIB) status according to the bank-client relationship and to withdraw the name from the wilful defaulter list, subject to board approval.

This move raised a question among bankers: when the central bank instructs a bank to lift a client's wilful defaulter status, what is the point of board approval if the same board had originally placed the name on the list?

When asked on what grounds the Bangladesh Bank instructed the removal of Deshbandhu's name from the wilful defaulter list, Arif Hossain Khan, spokesperson and executive director of the central bank, declined to comment. 

He said he was unaware of the matter and had contacted the relevant department for clarification, but did not receive a response.

The Business Standard had sent a written query to the Bangladesh Bank seeking clarification on the grounds for the instruction, but did not receive a response by publication time.

The Deshbandhu Group has reportedly been pursuing the Bangladesh Bank through the Ministry of Labour and Employment to secure a bailout by allowing rescheduling of its loans.

In a letter addressed to Bangladesh Bank Governor Ahsan H Mansur on 14 October, the ministry requested to urgently facilitate loan rescheduling, provide essential working capital, and reopen back-to-back Letter of Credit (LC) facilities for Deshbandhu Group factories to ensure the distressed conglomerate's operation continues.

The letter stressed the group's importance to the national economy, saying that "Deshbandhu Group is one of the country's largest industrial conglomerates. Since 1989, it has contributed to the national economy by establishing large and medium-sized industries in remote areas, creating 25,000 jobs. Various factories remain shut due to a lack of necessary raw materials and working capital, with five operating at a maximum of 25% capacity."

The letter also urged the central bank to provide capital and back-to-back LC facilities to resolve the impending labour crisis and restore factory operations.

Several factories under the Deshbandhu Group halted production following the political transition after the fall of the Hasina government on 5 August 2024. Currently, five export-oriented ready-made garment (RMG) units are struggling to remain partially operational.

Following the ministry's request, the Bangladesh Bank instructed Bank Asia to remove Deshbandhu's name from the wilful defaulter list to allow implementation of the loan rescheduling facility.