In an ominous sign, the central bank has flouted its own rules when it permitted Aviva Finance Ltd to open five more branches although the financial health of the non-bank financial institution has been in a bad shape.

Aviva Finance, which changed its name from Reliance Finance in November last year to brighten its image and restore depositors' confidence, also secured permission from the central bank to establish four more outlets last year. The Bangladesh Bank breached its rules this time as well. 

As per BB rules, no NBFI is allowed to open branches if its default loans surpass 10 per cent of the outstanding loans in the preceding year before an application is filed.

The non-performing loans (NPLs) of Aviva Finance have stayed above the threshold last year. The default loan rose to 26 per cent in September this year, up from 16 per cent towards the end of December in 2020.

The NBFI also faced a provision shortfall of Tk 27 crore against the outstanding loans as of June this year.

In Bangladesh, NBFIs are rated on a scale of one to five under the CAMELS system, with one being the best. The CAMELS, a parameter of the overall health of a financial institution, is an acronym for capital adequacy, assets, management capability, earnings, liquidity, and sensitivity.

Local NBFIs with the CAMELS rating of four are permitted to open a single branch annually, according to BB rules.

Aviva's rating stands at four, prompting the central bank to take an initial decision of not allowing it to open any new branch. But, the BB later changed the decision and issued a letter to the NBFI on November 11, granting it permission to set up the branches.

Aviva Finance is a concern of Chattogram-based business conglomerate S Alam Group. Md Saiful Alam, chairman of S Alam Group, also holds the same position at the company.

The new branches will take the total number of outlets to 14.

The central bank, however, asked the financial institution to lower its NPLs below 10 per cent by June next year.

According to a central bank paper, the BB also went against its rules last year when it granted the permission to Aviva to open the four branches as the NBFI has been facing the "marginal" rating under the CAMELS since December 2019.

In its application that sought approval to open the outlets, Aviva Finance said it mobilised deposits to the tune of Tk 500 crore between March last year and October this year. It lent Tk 367 crore during the period.

Earlier, the NBFI failed to pay back depositors on time.

Md Abdul Jabbar, managing director of Aviva Finance, said that their strength to repay the depositors had grown recently.

"We will open the branches as part of our business recovery plan. We had earlier faced some troubles in running businesses. But, the central bank's approval will help us improve our financial health," he said.

The new branches will be set up in the rural areas to attract depositors, he said.

In recent years, Reliance Finance has made headlines after Proshanto Kumar Halder, a scamster, embezzled thousands of crores of taka from four NBFIs. He was the managing director of the NBFI between 2009 and 2015 and is believed to have fled to Canada.

Jabbar said that Reliance Finance had been renamed because of the introduction of the Shariah-based window.

As of July, total loans and advances of the NBFI stood at Tk 2,925 crore. Deposits totaled Tk 2,640 crore, data from the central bank.

Speaking to The Daily Star, Md Serajul Islam, a spokesperson and executive director of the central bank, said that the central had allowed the NBFI to open the branches subject to bringing down the NPLs below 10 per cent within June.

"Besides, the NBFI will have to keep required provisions within the period," he said, adding that Aviva Finance had applied for six branches, but the central bank gave permission for five.

In Bangladesh, a good number of NBFIs are now struggling to repay depositors as the sector is facing a wide range of scams.

"The breach of the rules by the central bank itself will create more chaos in the NBFI sector," said another central banker.