The Supreme Court has stayed the High Court order that froze Bangladesh Bank’s circular offering relief to loan defaulters.
In a circular on May 16, the central bank sought to allow defaulters to regularize bad loans by paying a 2% down payment only, instead of 10- 50%, within 10 years.
Justice Md Nuruzzaman, chamber judge of the Appellate Division of the Supreme Court, issued the stay order when the Finance Ministry filed a petition on Tuesday, seeking reversal of the High Court freeze on the Bangladesh Bank circular offering lenient terms to loan defaulters. The chamber judge also sent the petition to a full bench for a hearing on Monday, July 8.
Attorney General Mahbubey Alam represented the Finance Ministry, while Advocate Manzill Murshid represented Human Rights and Peace for Bangladesh (HRPB), the petitioning body that took issue with the lenient terms of the Bangladesh Bank circular.
On May 21, the High Court froze the Bangladesh Bank’s May 16 circular till June 24, in response to a petition filed by lawyer Manzill Murshid on behalf of Human Rights and Peace for Bangladesh.
After it was issued, experts came down heavily on the circular, saying it would cast a shadow over the whole banking sector. They said offering such facilities would only increase the number of willful defaulters and discourage borrowers in good standing from repaying loans.
On June 24, the High Court extended its earlier freeze order by two months, till August 24.
The circular
The Bangladesh Bank circular specifically mentioned a number of privileged priority sectors such as wheat, food items, edible oil and refineries, and ship-breaking.
Unrecovered loans in default at specialized banks sanctioned for purposes other than agriculture would also be entitled to the facility, it added.
According to the circular, loan defaulters would have to apply for the facility within 90 days of the circular being issued. Once approved, they would have to repay the rescheduled loans within the next 10 years, with a one year grace period.
The rescheduled loans would have to be repaid at a 9% interest rate only, it added.
Besides that, the circular said banks could waive all interest for defaulters, depending on the bank-client relationship.
It also said loan defaulters could enjoy a “one-time exit” facility by paying only the bank's cost of funds and the principal loan amount. To avail this facility option, defaulters would have to pay the outstanding amount within a year.
Currently, a bank's cost of funds is typically between 3% and 5%.
Certain categories of loans in default before December 31, 2018, would be eligible to avail this latest rescheduling policy and the “one-time exit” facility, the circular added.
