The government is forcing Farmers Bank to sell majority of its share to state banks in efforts to save the sinking private bank mired in loan scandals.

The shareholders wanted the government to inject money into the scam-hit bank so they can retain majority share, he said.

“We overruled it. New banks [state banks] will finance it [Farmers Bank] and they [state banks] will own 60 percent of the share,” Muhith added.

Bangladesh Bank has already taken an initiative to pump capital into Farmers Bank through Investment Corporation of Bangladesh (ICB) and state-owned Sonali, Janata, Agrani and Rupali banks.

Last month, the BB held a meeting with these banks in this regard.

The five banks will buy shares (about 60 percent) worth Tk 1,100 crore from Farmers Bank, which had been given the licence on political consideration. The bank is now struggling to survive due to cash crunch caused by loan irregularities involving hundreds of crores of taka.

At the pre-budget discussion, an economist asked Muhith why the government was so worried about the failing bank.  

“I said, 'collapse of a bank is a matter of national concern. Bangladesh does not have many experiences of such bank collapse. In 1948, I myself lost my scholarship money as a bank [where he deposited the money] collapsed,'” Muhith told reporters. 

“I cannot allow such collapse of a bank during our tenure. We will save it,” Muhith said.

Farmers Bank is creating problems in the banking sector. This is why the government has been persuading its shareholders to sell majority of their shares, he added.

Asked if the loan defaulters will face actions, Muhith said, “Well, I think we will take action. They have been thrown out of the bank. Now let's see what actions can be taken upon further investigation.”

He acknowledged that depositors were facing problems as they cannot withdraw cash from Farmers bank. “Even state institutions that deposited Tk 400 crore to Tk 500 crore now cannot withdraw money.”

In a special inspection between September and November 2015, the central bank found gross violations of banking rules in disbursing loans by the management.

The BB found some of the bank's former directors, including its then Chairman Muhiuddin Khan Alamgir, also an Awami League MP, and then Audit Committee Chairman Mahabubul Haque Chisty, were involved in sanctioning these loans.

The two were later forced to quit.

Asked about the government move to buy its shares, Farmers Bank Managing Director Ehsan Khasru said they had no objection to the plan.

“The bank will benefit from it,” he told The Daily Star last night. 

BAILOUT PLAN FOR STATE BANKS

Despite criticism from economists, Muhith said the government was drawing up a five-year bailout plan for state banks.

The government injects some money in state banks without any plan or need assessment every year. However, Muhith has instructed finance ministry officials to assess the need of the state banks.

“We will provide them funds based on the assessment. The plan will be announced in the next budget,” Muhith told reporters.

As of December last year, the eight state banks have a capital shortfall of about Tk 20,000 crore, ministry officials said. 

Economists from the Bangladesh Institute of Development Studies, Bangladesh Economic Association, Policy Research Institute and Economic Research Group were present at the pre-budget discussion.

They suggested the government to be careful about borrowing from external sources for mega infrastructure projects.

Muhith said the government was careful about this.

According to a government estimate, its loan from external sources is 22 percent of the GDP, which will rise to 26 percent in 2024.

“Globally, loan of up to 30 percent of the GDP is considered within the safe zone. We are way below that threshold,” Muhith said.