Bangladesh Bank revises loan rescheduling, classifying rules
The central bank has revised rules for classifying and rescheduling loans considering difficulties faced by the banks and the business community.
No loan defaulter will be able to reschedule his or her defaulted loan more than three times. Banks from the date of rescheduling should treat loans that are overdue for more than six months as ‘substandard’, according to the revised rules with modifications of the Bangladesh Bank. The timeframe to consider any loan as ‘substandard’ was more than three months, before.
The new policy became effective from Sunday, said a BB circular issued on Sunday.
The circular said timeframes for treating loans under 'doubtful' and 'bad or loss' categories have also been increased by 12 months, meaning that loans will fall in the 'bad or loss' category if these are overdue for 12 months and above for each type of classification. In the earlier circular, however, a loan overdue for nine months was considered as bad loan.
On June 14 this year, the BB had tightened loan rescheduling and provisioning rules that drew much criticism from business community and bankers. They feared quick implementation of the loan rescheduling rules may give a rise to non-performing loans and that an additional requirement for provisioning will eat up banks' profits and as a consequence the government will lose taxes.
Under the latest circular, the loan which becomes repayable on demand by the bank is treated as demand loan. For rescheduling demand loan, banks will treat loans that are overdue for more than 12 months as ‘substandard’.
The loan which is repayable within a specified time period under a prescribed repayment schedule is treated as term loan.
Banks from the date of rescheduling will treat loans that are classified for more than 24 months as ‘substandard’. Time limit for treating loans under 'doubtful' and 'bad or loss' categories have also been fixed in 18 months. For rescheduling for Short-term Agricultural and Micro-Credit, repayment time limit for rescheduling should not exceed two years from the date of rescheduling.
If the loan becomes default after third rescheduling, the borrower will be treated as a habitual loan defaulter and the bank will not consider for further loan rescheduling.
Approval of loan rescheduling cannot be made below the level at which it was originally sanctioned. A detailed appraisal report including implications of such loan rescheduling on the income and other areas of the bank must be placed to the approving authority at the time of placing the rescheduling proposal, according to the BB circular