The Bangladesh Bank (BB) on Wednesday asked banks to enhance monitoring on loan utilization by bank borrowers so that no newly issued credit was used for repayment of previous bank loans.
The central bank circular in this regard also instructed banks to scrutinize the utilization of loans by their respective internal audits.
In violation of credit discipline, a section of bank borrowers have been using newly issued loans for the repayment or adjustment of existing loans, it is alleged.
For installment-based project financing, banks must be satisfied with borrowers’ fund utilization before the release of further tranches.
If any deviation in credit utilization is detected, banks are supposed to investigate the reason behind such deviation and take preventive measures.
The BB issued the circular under Section 45 of the Bank Company Act, 1991 with immediate effect.
In recent months, many borrowers have been taking loans under the government-announced stimulus packages simply to repay their previous loans instead of investing in business resumption or expansion, noted the BB circular.