In a gross violation of the banking rules, the United Commercial Bank has allegedly waived a director-related loan for less than one-fifth of the principal amount without Bangladesh Bank's approval.

The loan, which initially amounted to Tk 20 crore, was given to edible oil refinery Russel Vegetable Oils Ltd in January 1992, only two months after the firm was incorporated as a private limited company.

Two brothers of the then UCB director Sultana Hashem, also wife of the bank's ex-chairman and founder of Partex Group MA Hashem, held key positions in the oil company.

Her younger brother Harun-or-Rashid was the company's first managing director and another brother, Mahbubur Rahman, was one of its directors.

In November 1992, the UCB board of directors approved another Tk 45 lakh as project loan for the oil company, and raised the limit of letter of credit (LC) loan to Tk 15 crore from Tk 10 crore in February 1995.

The board also increased the limit of cash credit by Tk 0.5 crore in 1998 and that of pledge cash credit by Tk 1.5 crore the following year. This means the oil company got around Tk 27.5 crore in total.

Russel Vegetable Oils failed to pay the instalments regularly, leading to rescheduling of the project loan four times. The last one was done in May 2000.

As the bank failed to recover the loan, it filed two cases -- one with Artha Rin Adalat (money loan court) and the other with 1st Commercial Court in Chittagong -- on April 30, 2003, claiming more than Tk 32.05 crore including the principal amount and interest.

The bank also filed a criminal case against the borrower for unauthorised delivery of 10,000 tonnes of edible and palm oil.

It had financed the company for importing oil through 10 LCs worth $2.86 million (Tk 23.21 crore at current conversion rate), between November 5, 2000 and January 25, 2002.

The company stored the oil in MEB Tank Terminal in Chittagong. Later, it sold the oil in the market without informing its financier UCB, thus committing a criminal offence.

Finding no way to recover the loan, the UCB board in December 2004 wrote off Tk 26.48 crore on condition that the cases continue and the BB is kept updated on the matter.

The board then decided to settle the loan for only Tk 5 crore in April 2008 when MA Hashem and his son Showkat Aziz Russell were UCB directors.

But the decision to waive the loan was implemented six years later when MA Hashem became UCB chairman.

The final clearance came at a UCB board meeting chaired by Hashem on February 27, 2014. The matter was not listed as one of the meeting's top priority issues; rather it was on the “miscellaneous” agenda. The board decided to withdraw the cases and waive the loan for Tk 5 crore.

The minutes of the 361st board meeting read, “Resolved that the settlement of written-off outstanding of M/S Russel Vegetable Oils Ltd., Khatunganj Branch with redemption of land, building, machinery and other assets against payment of Tk 5 crore (already paid by the borrower company as per decision of 261st Board of Directors' meeting dated 03.04.2008) be approved and relevant cases be withdrawn.”

Talking to The Daily Star, BB Deputy Governor SK Sur Chowdhury said, “Principal amount cannot be waived without the central bank's permission, especially when there is involvement of a board member in the loan.”

The Daily Star got it confirmed from the UCB that the bank had not taken Bangladesh Bank's approval before settling the loan.

As of December 31 last year, Hashem and his spouse had 2.54 crore shares in the UCB and their son Showkat 2.12 crore shares.

Hashem held the post of UCB chairman for five years and his son Showkat other important positions, including that of audit committee chairman.

Talking to this correspondent, Hashem said, “The board decided to settle the loan for Tk 5 crore in 2008 when Jahangir Alam Khan was chairman. As the decision was not implemented, I settled the issue in 2014.”

He said the oil refinery project was abandoned and the borrowers gave the bank Tk 5 crore by selling their land.

Hashem said that though the borrowers were his relatives, the loan was sanctioned to Russel Vegetable Oils. His wife Sultana Hashem was not present at the board meeting which approved the loan.

“Humans can make mistakes, but you should see the intention,” he said, referring to the loan settlement issue.

Jahangir Alam Khan, former chairman of the bank, didn't respond to phone calls and SMS from this newspaper.

Contacted, Muhammad Ali, who was UCB managing director in 2014, said he had no knowledge of the matter.

UCB Managing Director AEA Muhaimen declined to comment.

MA Hashem started his business career in 1959 with tobacco trade.

He later established Partex Group, one of the country's largest conglomerates with ventures involving banks, non-bank financial institutions, insurance, beverage, particle boards, drinking water, jute, plastic, aviation, paper and IT.

Hashem was also chairman of City Bank, a first generation private bank.