Finance ministry exempts Shinepukur Ceramics from Bank Company Act provision, approves Sonali Bank LC facility

The finance ministry has allowed Shinepukur Ceramics Ltd to open letters of credit (LCs) with Sonali Bank against a 100% cash margin.

Infographics: TBS

The approval was granted because Shinepukur Ceramics is part of the Beximco Group, whose group status is classified as a loan defaulter. Following a request from the Bangladesh Bank, the finance ministry approved the facility by granting an exemption under the Bank Company Act.

The exemption specifically waives the relevant provision of the Bank Company Act to enable the facility.

However, the finance ministry has made it clear that Sonali Bank will not be entitled to seek any financial assistance from the government in the future because of this credit facility. It also said the Finance Division would bear no liability arising from the approval.

The ministry has sent a letter to the central bank in this regard. A senior Sonali Bank official confirmed the matter to The Business Standard. TBS has obtained a copy of the letter.

Shinepukur Ceramics has faced difficulties in opening LCs since 5 August 2024. Under the Bank Company Act, no bank or financial institution is allowed to extend any credit facility to a loan defaulter.

However, the law provides an exception. If a defaulting company within a business group is not a wilful defaulter, or if Bangladesh Bank determines that there were reasonable grounds for its failure to repay loans, then other companies within the same group will not automatically be treated as defaulters. Subject to prior approval from Bangladesh Bank, such companies may receive credit facilities in accordance with the central bank's directives.

In other words, because the Beximco Group is classified as a defaulter, all companies under the group are technically considered to have default status. Accordingly, Shinepukur Ceramics also carries that group status, although it is not individually a defaulting borrower. It is this legal complication that necessitated government approval under the Bank Company Act before any credit facility could be extended to a company belonging to the defaulting group.

A senior Bangladesh Bank official told TBS that government approval was required to extend the facility because Beximco Group has default status.

"Since Shinepukur Ceramics is a company under the Beximco Group, Bangladesh Bank sought approval from the finance ministry. The ministry has granted an exemption under the Bank Company Act, allowing Shinepukur Ceramics to open LCs with Sonali Bank against a 100% cash margin," the official said.

A senior finance ministry official said the ministry considered the matter following Bangladesh Bank's request.

According to the finance ministry's letter, the Finance Division will bear no liability arising from the credit facility, and Sonali Bank PLC will not be able to seek any financial assistance from the government in connection with it.

The letter also requires all revenues of Shinepukur Ceramics Ltd to be deposited into a designated bank account, from which Sonali Bank's dues must be repaid regularly on a proportional basis.

Mohammad Asad Ullah, Executive Director and Company Secretary of Shinepukur Ceramics, said, "Beximco is not a wilful defaulter. We were not in default even in 2025. During the interim government's tenure, many factories were shut down and a large number of workers were laid off."

He added, "Shinepukur itself is not a defaulting company. However, because it shares the same directors with the group, its status is classified as a defaulter."

A senior Sonali Bank official told TBS that the application had been made to help resume industrial operations and normal business activities.

"The governor wants to create a more business-friendly environment. That is why the request was submitted seeking permission to extend this facility to Shinepukur Ceramics," the official said.

Bangladesh Bank had sought clarification from the finance ministry on whether Sonali Bank could legally extend the facility. The finance ministry subsequently granted Shinepukur Ceramics an exemption from Section 27Ka(3) of the Bank Company Act.

A senior Bangladesh Bank official told TBS that, following the exemption granted by the finance ministry, the central bank will issue a notification on the matter.

In 2024, Bangladesh Bank issued a notification allowing defaulting borrowers greater access to bank financing. Under that notification, companies within a business group could obtain loans even if another group company had defaulted, provided the central bank determined that the default was not wilful and was caused by reasonable circumstances.

Before the notification, a default by one company automatically prevented other companies in the same group from obtaining bank loans. Despite the policy change, defaulted loans in the banking sector have continued to rise sharply.

The managing director of a private bank told TBS that Bangladesh Bank should carefully assess any new regulatory support before introducing it.

"If circulars or policy support fail to reduce defaulted loans and instead create additional risks, then Bangladesh Bank and the concerned banks will ultimately have to bear responsibility for the consequences in the future," he said.