Defaulted Loan: Grows in long legal process

Aziz Pipes, a leading PVC pipe manufacturer, owes Tk 28.71 crore to Uttara Bank. The company took the loan between 1997 and 2003 from the bank's Motijheel corporate branch.  

On maturity, it failed to pay back, and the bank published an auction notice in August 2005 in a newspaper to sell the mortgaged properties of the borrower.

But the lender's legal move did not bother the borrowers. They filed a writ petition with the High Court to stop the auction process.

Then about three months later, the bank filed a case with Dhaka Artha Rin Adalat (money loan court) against Aziz Pipes and its seven owners and their legal heirs to recover the loan.

Later, Aziz Pipes filed two write petitions with the HC in 2008 and 2014 and the HC subsequently stayed the lower court proceedings.

In 2015, however, the HC vacated the writ petitions and the case is now pending with the money loan court.

Some 12 years have gone by but the bank is still fighting for recovery of its money.

In another instance, Dhaka Bank has been fighting since 2008 to recover a paltry Tk 1.74 lakh from a credit card user. Though the court issued an arrest warrant for the defaulter, law enforcers found the address of the borrower false.  

They are just two of the 55,262 cases involving Tk 73,556 crore defaulted loans pending with courts as of June 2017. The amount stuck in lawsuits accounts for 10.05 percent of the banking industry's total outstanding loans of Tk 731,625 crore as of June last year.

Such a huge amount of loans stuck in legal tangle not only discourages good borrowers to pay back their loans in time, it also eats up banks' profits and weakens their financial health, experts and bankers said.

It also erodes banks' capital base as the lenders have to keep aside the same amount in provision against these defaulted loans.

They said inadequate number of money loan courts and shortage of trained judges are largely to blame for the unsettled financial cases. Many believe that some banks are hardly serious about getting their money back, which prolongs the process.

The government enacted the Artho Rin Adalat Ain in 2003 to resolve the pending cases, but it has yet to bring expected results.

According to Bangladesh Bank data, the amount stuck in legal battle increased Tk 12,088 crore in one year -- between June 2017 and June 2016.

The number of cases also surged to 55,262 in June 2017, up from 49,829 a year ago.

Md Obayed Ullah Al Masud, managing director of Sonali Bank, which has a whooping Tk 14,677 crore stuck in legal tangle, said his bank's financial health would have been much better if they could recover the loans.

“The pending cases encourage habitual defaulters not to repay the loans. Also, good borrowers could have taken loans at a lower rate than the prevailing rate if the money could be recovered,” he said.

At the moment, each district has only one money loan court, which is inadequate considering the number of cases pending, he said.

Obayed said the government should set up at least two to three courts in each district and also introduce a special bench in the HC for settling these cases.

He also said some defaulters frequently file writ petitions with the HC, halting the case proceedings in the lower court.

Ahsan H Mansur, executive director of the Policy Research Institute, said the large amount of loans getting stuck in the legal battle is one of the major reasons behind the deteriorating health of the banks.

“Majority of the defaulters took the money to serve their ill motives and this has an adverse impact on the bank and the overall economy,” he said.

There is no specialised judge in the country to settle financial cases, he noted. Special training should be arranged for the judges at home and abroad so that they can dispose of the cases faster, he said.

“The government should set an annual target to reduce the number of unsettled cases by increasing the number of courts,” Ahsan said.

Imran Ahmed Bhuiyan, a deputy attorney general, told The Daily Star that it was a tough job for the banks to acquire the possession of the mortgaged assets of the borrowers.

Banks cannot acquire the mortgaged properties even after getting the verdict in favour of them as no one usually shows interest to buy the properties because of the dispute, he said.

When the courts take an initiative to transfer the properties to the banks, clients file fresh cases in lower or high courts to stop the transfer, he said.

So banks have to wait for years to recover the loans, Imran pointed out.

Of the Tk 73,556 crore defaulted loans stuck due to lawsuits, 40 private commercial banks accounted for over Tk 37,400 crore, eight state-run banks Tk 34,965 crore and nine foreign banks Tk 1,190 crore, BB data show.

Abdul Halim Chowdhury, managing director of Pubali Bank, faulted some banks for not pursuing the cases properly.

“Not all banks take adequate measures to have the cases disposed of,” he told The Daily Star.

Pubali Bank has only Tk 1,254 crore in defaulted loans stuck in the process, compared to Tk 4,885 crore of National Bank, which is much younger than Pubali.