Besides the writing off, vigorous move to recover default loans following the enactment of Money Loan Court Act, 2003 contributed significantly to the decrease in bad loans, according to a publication of the Finance Division on the activities of banks and financial institutions in 2003-04 fiscal year.

Under the new legislation, banks were given the authority to sell the property kept as collateral against loan, without prior approval of the court, it said.

The central bank this fiscal year adopted a policy to write off the bad loans which exceeded five years after being classified and asked the banks to follow the guidelines in order to lower the share of default loan in the total loans.

A major chunk of loans was written off by the nationalised commercial banks following the internationally practised tool of clearing the balance-sheet. "However, writing off does not refer to waiving loans," a senior official of a commercial bank said.

Meanwhile, in FY 2003-04 nationalised banks planned to disburse Tk 43.79 billion in the agricultural sector out of which Tk 20.53 billion was disbursed in the first eight months. The amount disbursed in the previous year (FY 2002-03) was Tk 35.61 billion.

The report mentioned that interest rate on farm loan has been lowered to eight percent from 9 to 10 percent previously and the government also waived interest on principle amount of agricultural loans not more than Tk 5,000.

During the first six months of this fiscal, the banks disbursed term loan of Tk 31.77 billion in industrial sector which was Tk 14 billion (78 percent) higher than the amount disbursed during the same period of the previous fiscal.

The share of classified industrial loans in the total amount was 27.28 percent in December 2003, which was 32.76 percent in December 2002.

The report also mentioned that Bangladesh Bank granted licence to 28 non-bank financial institutions until March this year and the cumulative amount of paid up capital and reserves of these institutions was Tk 9.86 billion at the end of last fiscal.

Till February 2004, these financial institutions commercially invested Tk 38.25 billion in different sectors, it said.

Meanwhile, deposits of the commercial banks shot up by Tk 59.91 billion in the first eight months to stand at Tk 1125.88 billion while total loan disbursement reached Tk 901.83 billion showing an increase of Tk 69.19 billion over the same period of last fiscal.