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The state bank is in crisis due to irregularities and loan scandals. Half of the loans disbursed are in default. It is difficult to recover these bad debts. It is very difficult for these banks to fork out billions of rupees in new loans. As a result, the opportunists are now looking for foreign reserves. In other words, its new destination is now the central bank itself. Due to the ongoing coronavirus epidemic, reserves have increased by 7.5 billion pounds to more than 40 billion pounds. And this is what has brought danger to the reserve.
This fear began when Orion Group began operations as the first company to take money from reserves. The company has been desperately trying to establish a coal-fired power project with reserve money since July 26. The company wants a loan of £ 908.18 million. If we calculate it in terms of money, the amount of this loan is 6,884 crore rupees. There is no precedent for a business to borrow so much money from a single bank.
Experts say these reserve loans are very risky and unregulated. Additionally, due to environmental pollution, several countries are now moving away from coal power projects and focusing on renewable energy.
Former Deputy Governor of the Khandaker Central Bank Ibrahim Khaled The daily star“Under no circumstances should such risky loans be allowed,” he said. According to him, the issue should be taken very seriously by both the government and the central bank.
Orion Group wants to establish a power project called Orion Power Plant-2 Dhaka Limited on the banks of the Meghna River in Gazaria upazila of Munshiganj. The total cost of the project is estimated at ১৩ 1.13 billion or Tk 9,853 crore (one taka equals 74.80 taka). Orion wants to invest only 20 percent of the total capex. Efforts are being made to obtain the remaining 80 percent loan from the central bank.
The company wrote a letter to Rupali Bank on July 27 requesting a loan from the central bank. You are trying to take this loan through refinancing. In other words, the reserve money will be delivered through Rupali Bank. If Orion cannot return the money on time, the central bank will recover it directly from Rupali Bank.
Renowned economist Anu Muhammad said: “It is a crime to establish a coal power project with money from reserves.” “These energy projects are one of the regulators of environmental pollution,” he said.
Foreign exchange reserves are considered one of the indicators of the economic security of a country. Generally, reserves are granted only when a country’s economy is in crisis due to international transactions, ”said the economics professor at Jahangirnagar University.
Dr. Ferdous Zaman, secretary of Orion Group Company, asked why the initiative was taken to invest in the project with a loan from the Central Bank. Daily star“The central bank has requested a loan at a rate of four percent, which is less than the national and international banks,” said K.
He added: “The world economy is in recession due to the ongoing coronavirus epidemic. As a result, the interest rate on loans in the world market is currently low. But, in the future, it will rise again. It is more affordable to take out. central bank money than foreign loans.
“In addition, local banks have to pay commissions to guarantee the guarantee of external loans, which further increases the cost of funds,” added Ferdous Zaman.
“If we don’t get a loan from the reserve, we will implement the project through a syndication loan,” he said. Orion Group has already approved several bank loans.
Meanwhile, senior officials from the central bank and Rupali Bank have disagreed on loans to the Orion Group. Several officials from the two organizations, who did not want to be named, confirmed the matter.
They said a section of officials from the two companies had also started lobbying for a loan to Orion.
Only a few rich countries in Asia have already used foreign exchange reserves. A handful of countries, including China, the United Arab Emirates, Singapore and Saudi Arabia, have invested surpluses in their reserves. Most of the money they have used as foreign direct investment is in other countries. However, these examples are rare in the use of reserves in low- and middle-income countries like Bangladesh.
The loan proposal is already in doubt
This is Orion’s first loan offer from the Reserve, but it won’t stop there. Other controversial business groups will follow Orion. The history of the past tells it. In 2015, a controversial large business group applied to the central bank to restructure a loan of 5 billion rupees, including defaulters. This facility was sought in defiance of conventional banking rules. Later, the central bank was forced to restructure Tk 15,000 crore against the demands of a total of 11 companies. Most of that money has yet to be returned.
This time, the proposal to take a loan from the reserve also conflicts with the Bangladesh Bank Order of 1972. If for some reason Orion cannot repay the loan on time, Rupali Bank will face a major crisis. Because they have to pay this money on behalf of Orion. As a result, in the case of these loans, the government generally has to provide a guarantee so that the bank in question can cope with the risk.
However, the government itself is now backing away from coal-based projects, citing environmental pollution. Furthermore, the Orion Group has a long history of controversial loans from the Oriental Bank (now ICB Islamic Bank). (https://www.thedailystar.net/news-detail-16813)
Despite all this, the Rupali Bank board decided on August 13 to take over the entire loan from Orion Group. The eight state bank lending scandal, including Rupali Bank, is nothing new. As of June this year, 49.34 per cent of the loans of Rs 96,117 crore disbursed by them have defaulted on their payments. The central bank has been forced to appoint observers at all six banks.
MD Sirajul Islam is the Rupali Bank observer appointed by the Central Bank. He opposed the proposal at the board meeting on August 13. However, despite their opposition, some board members took a positive stance in favor of the loan. For these reasons, the proposal was sent to the central bank on August 19.
Surprisingly, the upper echelons of the central bank itself found nothing wrong with the loan proposal. They positively support it. Then, on August 31, the central bank sent a letter to Rupali Bank requesting more details on the loan proposal.
Then the incident took a dramatic turn. Because, Rupali Bank’s board decided on September 30, the bank will not be able to bear the burden of such a large loan.
However, these troubles could not suppress Orion. The group then approached Agrani Bank on October 8 with the same offer.
Agrani Bank had previously committed to providing funds for the Orion Group’s energy project through a syndication loan. In such a system, several banks make large loans to a company to implement the project. By virtue of this, Agrani Bank has already approved loans of Tk 120 crore, Janata Bank Tk 574 crore and Premier Bank Tk 200 crore.
However, Orion is no longer interested in such loans, as reserve money is very attractive. First, the interest rate on your proposed loan from the Reserve is four percent. This rate is less than nine percent of the conventional market price. What’s more, the government has already bailed out such large companies in crisis.
Obaidul Karim, President of Orion Group, wrote in a letter to Agrani Bank, “… Our foreign exchange reserves are now in surplus. Under the leadership of the honorable prime minister, the government has now decided to invest in mega-projects with money from reserves. The power plant is such a big project. Such an initiative will play a role in saving the country’s foreign exchange in the long term.
The recent positive flow of remittances and the decline in imports have led to an attractive increase in reserves. Reserves have also increased due to loans approved by the World Bank, the International Monetary Fund, the Asian Development Bank and other multilateral lending institutions.
Finance Minister AHM Mustafa Kamal on October 8 Daily star“The government is looking for ways to use reserve money on certain government projects,” said K.
Central bank officials said the government should also guarantee the use of reserve money in government projects.
Meanwhile, Orion reminded Agrani Bank of various benefits to be tempted. The bank will be able to earn a good commission as a service charge if the company invests the reserve money in energy projects.
In addition, more than িয়ন 600 million in debentures will be opened through Agrani Bank, from where more commissionable income can be generated.
Orion officials also met with Agrani Bank officials on October 19 on these issues. Shamsul-ul Islam, Managing Director of Agrani Bank was contacted Daily star“A final decision has not been made yet,” he said.
“The decision will be made after speaking with the bank’s board, the central bank and the banks involved in the syndication loan,” he added.
Shams-ul-Islam said: “Agrani Bank will make a decision following the current rules in this regard.”
John Orion’s multi-faceted reserve money streak
July 26: Orion offers loan to Rupali Bank
August 13: Rupali bank board approves proposal despite opposition from central bank observers
August 19: Rupali Bank writes a letter to the central bank ignoring the opinion of observers
Aug 31 – Central bank takes proposal positively and orders Rupali Bank to submit detailed report
September 30: Rupali Bank withdraws and refuses to take over the loan. Only the agent wants to work as a bank
October 6: The same loan proposal was presented to Banco Agrani
October 19: Meeting between Agrani and Orion officials. Orion was asked to submit a detailed report
October 20 onwards: Agrani Bank initiated the initiative to send the proposal to its Board of Directors and Central Bank
