Experts are of the opinion that the snap decision on halting recapitalization of state-owned banks (SoBs) without any policy support may create another blow to already battered public sector banks.
They suggest that the government should consider stopping injection of capital in SoBs as a reform initiative and go slow in implementing it.
Finance Minister AHM Mustafa Kamal on Sunday announced that public sector banks would not get refinancing (recapitalizing) any more to cover losses and minimize provision shortfall.
In the last 10 years since 2010, the government injected Tk17,521 crore in all the SoBs.
A Bangladesh Bank (BB) advisor says the government, as owner of the banks, cannot deny the liabilities and responsibilities of them.
Therefore, implementing abrupt decision of stopping recapitalization will not be possible at once, he apprehends.
However, the BB advisor welcomes the announcement made last Sunday by the finance minister, who vowed not to recapitalize the SoBs any longer.
He also thinks that the announcement of Kamal will jolt top brass of SoBs slightly, who need to review their past performance and go for fresh plans to improve their financial standings with reducing mounting non-performing loans(NPLs), scams and banking irregularities.
Talking to Dhaka Tribune, former World Bank (WB) lead economist Zahid Hussain has said SoBs need to have policy support from the government to raise their income and reduce dependence on the public coffer for handouts.
"The government should consider stopping recapitalization as a reform initiative and move forward to implement it phase by phase. Otherwise, the overnight decision may compel SoBs’ managements to shut down loss-making branches in rural areas," Zahid Hussain forewarns.
He says one of the root causes of public sector banks’ long-held dependence on budget allocation of fresh fund is their rising NPLs that erodes a bank's income.
He says rise in NPLs is a result of corruption, external interference, among other causes, in bank's financial operation.
"External pressures on SoBs need to be stopped," he adds.
The noted economist also observes that SoBs carry out some state works without being paid which private banks do not.
He says SoBs are not being paid for rendering services of disbursing various allowances to targeted groups under the government’s social safety net programmes.
Some of the services include disbursement of scholarship to students, MPO (monthly payment order) for teachers and collection of taxes.
"SoBs are bearing operation cost in delivering services but they are not being paid for that. The banks may be allowed to charge a certain amount in fees for each of the services. These fees may help raise banks’ income," Zahid Hussain points out.
He says the need for recapitalization may continue if the banks are not offered policy supports.
Meanwhile, a BB advisor says stopping the recapitalization would result in rising NPLs for the banks in question.
He, however, advises the SoBs not to get panicked by the finance minister's announcement.
He says the finance minister's announcement was 'timely and good' for the SoBs’ boards and managements.
"SoBs would not feel pressure if no such announcement was made," he says.
He says the troubled public sector banks should focus on improving their performances to increase income, and lessen bad loans.
"Otherwise, NPLs and provision shortfall would keep rising ," he points out.
The BB advisor says the liability the government bears as owner would continue.
In India, huge state fund money is being injected every year to shore up their state-run banks, he adds.
