Janata Bank has been granting undue favour to yet another big borrower, allowing the company to open letters of credit (LC) one after another overstepping all sorts of banking rules, multiple Bangladesh Bank investigations have found.

The borrower, Thermax, has been enjoying such privilege although the garment company has paid little of its previous dues, which now stands at a staggering Tk 1,230 crore.

When a company fails to pay back the money against an LC, the amount becomes a forced loan. It disqualifies the borrower from availing the LC service until it clears the outstanding loan, according to central bank rules.

But this company has been allowed to open fresh LCs over and over again even after its previous LCs became forced loans, said the BB's latest report in March this year.

In paper, Thermax has an LC limit of Tk 264 crore against its three entities. In reality, it received LC benefits worth Tk 816 crore between 2013 and 2016, more than three times the ceiling, from the bank's corporate branch at Motijheel. This was done without approval from the bank's board, another violation of BB rules.

As a result, Janata's total outstanding loan to Thermax -- Tk 1,230 crore (interest and other charges included) as of March this year -- exceeded the single borrower exposer ceiling of 15 percent set by the BB. It also crossed the 25 percent limit set in the Bank Company Act 1991.

As of December last year, Janata bank's capital was Tk 4,460 crore, of which 27.5 percent was given to Thermax, according to BB data.

During two other investigations in 2015 and 2016, the BB team did not find any record at the central bank that Janata took approval from the BB, which is mandatory for sanctioning loans beyond the limit.

From 2013-16, six of the Group's 16 companies imported raw materials worth Tk 346.34 crore against LCs from the state-run bank. Against this import, they exported goods worth Tk 169 crore, just about half of the import amount.

This made the operations of the companies unviable.

But then the story may turn out to be a different one as various units of Thermax played the role both as exporter and importer, using most of the LCs that have gone bad.

It is possible documents were made up without either raw materials actually being imported or products exported, said a BB official, asking to remain unnamed.

In its March report, BB's off-site supervision department questioned why LCs have been opened one after another despite the client's claim that export order has dropped drastically. It also recommended that the BB thoroughly investigate the Group's raw material stock.

For its export failure, Thermax authorities cited reasons that apply to all garment exporters in Bangladesh.

“We have been facing difficulties getting export orders since the Holey Artisan attack in 2016. Besides, we have incurred huge losses due to price hike of cotton several years ago. That's why we could not clear the dues on time and had to reschedule the loan several times,” Ananta Kumar Sarker, general manager of Thermax, said last Sunday.

“Sometimes you need to take loans over the limit to keep the business going. This is a big company with an annual export worth around Tk 3,000 crore,” Ananta told The Dily Star at the Group's Kakrail office.

He spoke on behalf of Thermax Chairman and Managing Director Abdul Kadir Molla, who is also a director of South Bangla Agriculture Bank.

The official, however, gave only a partial story.

The Group has a total loan of Tk 5,000 crore from various banks as of August this year. Of the sum, Tk 1,446 crore is defaulted, according to BB data.

In 2015, the company restructured Tk 642 crore of its loans from Janata Bank under the special large loan restructuring package offered by the BB.

The probe report in March, however, said bank officials may have taken undue favour from the company to classify “forced loan” as “long-term loan”. 

After the restructuring, Janata has realised Tk 326 crore so far.

The latest report recommended examining the financial activities of the borrower and the source of the money with which it paid the instalments since restructuring. 

Abdus Salam Azad, managing director of Janata Bank, refuted the BB findings, saying all loans were sanctioned with the central bank's approval.

Large loans can be restructured on some conditions and based on future cash flow analysis of the business in question, said former BB governor Salehuddin Ahmed.

But before doing so, the central bank should enquire why the company failed to pay the instalment in the first place. Also, the BB should find out if the company provided any false information or manipulated financial statements just to avail the benefit, he added.

Meanwhile, in a proposal last week, Thermax requested the Janata Bank to restructure the instalment size as well as allow a two-year instalment waiver till 2020. After the 2015 restructuring, the loan is payable by the end of 2026.

Despite the irregularities and serious observations from the central bank's fact-finding unit, the Janata board has endorsed the company's proposal to reschedule the entire loan again, and sent it to the BB for approval.

Strangely, BB's banking regulation and policy department advised Janata Bank to make the decision based on “bank-client relations”. 

This decision certainly goes against BB's steadfast regulation, which is necessary to maintain financial discipline in the banking sector.

It might as well plunge the once sound Janata Bank, already hit hard by a combined defaulted loan of Tk 8,300 crore by Crescent and AnonTex, into a deeper crisis.