The new MoU, signed on June 30, ordains that the banks will have to recover a certain percentage, ranging from 3 to 10 percent, of default loans from their top 20 defaulters by December this year. From other defaulters, the NCBs must recover 9 to 15 percent loans, sources said.

As of December last year, top 20 loan defaulters were blocking Tk 1,555 crore of Sonali Bank. According to the new understanding, the bank must get back 10 percent or Tk 155 crore from them in this year. Besides, the bank is also required to recover 10.5 percent or Tk 521 crore from other loan defaulters who are blocking Tk 4,958 crore.

Janata Bank has been asked to recover 5 percent or Tk 35 crore from its top 20 defaulters who are blocking Tk 627 crore. From other defaulters, who are blocking Tk 2,199 crore, the bank will recover 9 percent or Tk 200 crores.

Agrani Bank has to recover 3 percent or Tk 17 crore from its top 20 defaulters who are holding Tk 565 crore. The bank will also recover 15 percent or Tk 391 crores from other defaulters who have Tk 2,641 crore with them.

The target set for Rupali Bank was not available. Top defaulters are blocking Tk 425 crore of this bank. Its total default loan stands at Tk 769 crore.

The central bank in June last year signed the first MoUs with these four banks restricting issuance of new loans, specially big ones, and prescribing 10 percent cost cut by December last year. Although the NCBs could not realise their targets, some measures deriving from the MoUs yielded notable progress.

The second set of MoUs is signed with the hope that the NCBs will move closer to their improvement targets.

Under the new understanding, the increase in loans and advances in 2004 will be limited to 5 percent of the outstanding amount as per the bank's audited balance sheet. This growth will be inclusive of loan write off.

The first MoU while laying out a similar target had excluded loan write off. As a result, the banks could hand out loans more than 5 percent of their outstanding amounts by using the funds of the written off loans. So, the new agreement specifically includes the written off loans in calculating the total fund.

As the last year's target of reducing overhead cost by 10 percent failed miserably, the new MoU sets a more realistic target of cutting the cost by 5 percent.

As per the MoU, the NCBs will have to implement, in due time, the central bank's foreign exchange risk management guideline and confirm it.

The managing directors of NCBs will directly supervise the dealing room operations. All existing unadjusted old entries of Nostro accounts will be adjusted by August 31. The agreement also requires them to ensure that all such entries are reconciled within a maximum period of 90 days from the date of entry.

The MD of Agrani Bank, ASM Imdadul Haq, believes the new targets are not impossible to achieve. "Between January and May, we succeeded in recovering Tk 350 crore default loans," he said. "Within the remaining time, it seems to be possible to recover the rest of the targeted default loans."

He however is not sure about how far the banks will succeed in cutting their costs, as last year the overhead cost actually had increased.

"Just consider that when employees get their annual increment in salary, the overhead cost increases by 2 percent. But we have taken steps to cut other costs," he said, adding, "For instance, to cut transportation cost, we have taken steps to convert the fuel system of all our cars into CNG."

Another NCB high official says, "A multitude of factors make it real difficult to trim the costs. Just consider the fact of the trade unionists using cars and phones for personal purposes at the expense of the banks, and yet the government does not want to be hard on them, because they are involved in ruling party's politics."