BB makes defaulting tougher

The Bangladesh Bank has rolled out new facilities for defaulters, allowing them to reschedule their loans up to four times under special consideration while the repayment period will be a maximum of eight years.

Defaulters earlier could reschedule their loans for a maximum of three times while the repayment period was a maximum of three years for term loans and a maximum of one year for continuous and demand loans.

The new facilities have been provided to maintain stability in the financial sector and properly manage classified loans in light of the long-term impacts of the pandemic, the global economic instability, and the upward trend in Covid-19 infections, the central bank said in a master circular on Monday.

It also said the two previous circulars on loan rescheduling and restructuring would no longer be effective.

Syed Abu Naser Bukhtear Ahmed, former managing director of Agrani Bank, appreciated the facilities. But he said loans should not be allowed to be rescheduled more than twice, adding the eight-year repayment period was fine.

“The eight-year repayment period will benefit industries the most,” he told The Business Post.

Ahsan H Mansur, executive director of Policy Research Institute, told The Business Post the facilities would not accelerate loan recovery. “Instead, the central bank should focus on taking strong steps to prevent defaulting on loans.”

Under the new facilities, approval of the banks’ boards of directors must be obtained to reschedule loans for the third and fourth time while the down payment must be 1 per cent more than the stipulated amount.

The circular said a rescheduling application should be carefully examined to find out the reason for the loan’s classification.

If the loan is used for other purposes or in case of wilful default, the application will not be considered. Rather, necessary legal measures will be taken to recover the loan.

Rescheduling details

To reschedule a term loan for the first and second time, a person defaulting on a loan of less than Tk 100 crore can repay in six years.

For loans amounting between Tk 100 crore and less than Tk 500 crore, the repayment period will be seven years while it will be eight years for loans between Tk 500 crore and above.

To reschedule a continuous and demand loan for the first and second time, a person defaulting on a loan of less than Tk 50 crore will get five years while it will be six years for loans between Tk 50 crore and less than Tk 300 crore and seven years for loans between Tk 300 crore and above.

To reschedule term, continuous, and demand loans for the third and fourth time, the repayment period will be reduced by a year.

Down payment

To reschedule term loans, the down payment will be 5-7 per cent of the overdue instalments or 2.5-4.5 per cent of the outstanding amount.

For continuous and demand loans, the rescheduling facility can be availed with a down payment of 2.5-3 per cent of the outstanding amount.

If a borrower pays the required down payment in cash and applies for rescheduling, the bank must settle it within three months of receiving the application, the circular said.

Besides, if a borrower pays the down payment by a cheque, pay order or any other medium, rescheduling will start after encashment. Instalments paid prior to the application will not be treated as down payments.

The circular said rescheduled loans cannot be restructured but term loans can be restructured without a down payment.

In case of regular term loans, they can be restructured by extending a maximum of 50 per cent of the remaining repayment period. The restructuring facility can be provided only once.

Before deciding to reschedule a loan, the bank should verify whether the client has loans in other banks or non-bank financial institutions and whether he or she has repayment capability.

The client’s place of business should be checked by bank officials to verify his or her repayment capability.

The circular said this policy should be considered the minimum standard for loan rescheduling and restructuring. Banks should formulate their own policies on loan rescheduling and restructuring based on this, which should be approved by their boards of directors.

If a classified loan has been rescheduled four or more times prior to the issuance of the circular, the loan may be rescheduled once more under special consideration, which will be treated as the fourth-time rescheduling. This facility will remain till December 31 next year.