Interest Waiver for FFEA?
The frozen food sector appears to be stumbling from one crisis to another. Recently, this promising export-oriented industry was threatened with a ban in the lucrative European Union (EU) market due to inadequate hygiene standards of its processing plants. But no sooner had the exporters began to recover from this shock, it is faced with plummeting prices in the world market. European displeasure and falling prices have combined to hit the frozen food sector hard, and shrimp worth Tk 370 crore is reportedly stockpiled in the exporters' warehouses. But now the exporters fear that a government plan to provide temporary relief to the sector may not yield the desired results. They are now asking for the interest on loans kept in blocked accounts to be waived, which may be easier said than done from the bankers' point of view.
The exporters have recently been allowed to keep 15 per cent of their estimated Tk 310 crore bank loans in blocked accounts, which would be realised gradually. But the commercial banks, which worked out the bail-out deal with the Frozen Food Exporters Association (FFEA), have imposed a nine per cent annual interest on the blocked accounts. This, the FFEA says, is likely to defeat the objective of the whole exercise which was supposedly designed to help ease the pressure of falling exports and prices on the exporters. Banks would say that by allowing exporters to keep part of their loans in blocked accounts, they have given them a breathing space. But banks cannot simply waive interests on loans because this would hit at the very basis of banking operations.
This is clearly a major dilemma for the government. The commercial banks cannot be pressured into giving special treatment to selected groups, particularly where the basic discipline of banking operations is at stake. It is one thing to allow debtors to transfer money into a blocked account; but it would open up a whole area of uncertainty if interest on those loans were waived as well. Interests are earnings the banks cannot simply give away, nor should the government pressure commercial banks into such ad hoc arrangements that could have serious implications. It is necessary for the government and FFEA to come to other arrangements that help the frozen food sector, like fiscal benefits and export supports, rather than affect banking discipline.
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