Bangladesh Bank has rejected a Sonali Bank plea to inject Tk 62.50 crore as fresh capital into its India operation so that the foreign branches of the bank could not disburse large amount of loan to any single client or corporate group.
Sonali Bank has been operating its business through two branches – at Siliguri and Kolkata – in India where only four top borrowers are now holding 80.40 per cent of total defaulted loans, according to a BB report.
Besides, 65.35 per cent of total defaulted loans of the two branches are now stuck with the top 20 borrowers.
The overall defaulted loans in the two branches stood at 3.44 per cent as of March 31, 2016 against their total disbursed loans.
The bank issued a letter to the central bank on March 27 requesting it to give approval to transfer capital into its India operation with a view to increasing its single borrower exposure limit.
A bank is allowed to disburse maximum 15 per cent loan to a single borrower against its total capital in line with Basel III guidelines, a global voluntary regulatory framework on banks’ capital adequacy, stress testing and market liquidity risk.
The management of Sonali Bank requested the central bank to provide the capital support at a time when the state lender itself faced a capital shortfall of Tk 2,557.74 crore as of March 31.
The existing huge capital shortfall of Sonali Bank is another cause of denying the bank’s plea to inject the capital into its two foreign branches.
If Sonali Bank gets the approval from the central bank, the limit of credit disbursement to a single client or a group would increase that might fuel the defaulted loans further, a BB official told New Age on Tuesday.
Sonali Bank in its letter said the bank would want to transfer around Tk 56.85 crore or Indian Rupee 45.48 crore as capital from its head office that would provide under a credit scheme with an interest rate of 5 per cent.
The two branches in India will convert their profit amounting to Indian Rupee 4.52 crore or Tk 5.65 crore into capital.
The two branches made a good profit from fiscal year 2011-12 to FY 2014-15.
The BB report said that Sonali Bank had also violated the banking norm not to repatriate the profit to Bangladesh in due time.
Any local bank or its subsidiary company, which is operating business abroad, has to repatriate its profit every year in keeping with the central bank regulations.
The BB, however, gave a post-facto approval to the bank to keep the profit as retained earnings in the two branches.
The capital of India operation of the bank stands at 14.56 per cent against its risk-weighted assets which are sufficient in line with the Basel guidelines, the BB official said.
Against the backdrop, the central bank issued a letter to Sonali Bank managing director Md Obayed Ullah Al Masud on June 21 asking him not to inject any fresh capital into its India operation.
In March, Sonali Bank transferred Tk 171 crore to its scam-hit UK operation that is suffering from cash crunch.
The government also transferred Tk 178.41 crore to the Sonali Bank (UK) Ltd in July, 2016 in proportion to its share.
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