Bangladesh Bank has asked the financial institutions to realise their due interest and principle within the tenure of a loan or end of its maturity before renewal of the loan.
The instruction came in the wake of renewal of the loans by banks despite non-repayment or adjustment of the outstanding loans, said a circular issued yesterday.
Bangladesh Bank found some banks were providing one year term revolving loan having condition to pay interest in monthly instalments and the principal at the end of the maturity.
There is a condition that the loan will be renewable at the end of the maturity.
But the loans are being renewed showing regular, despite non-payment of the outstanding loans at the end of maturity. Moreover, some banks were renewing the loans for next term considering the accrued interest and principle as new loan limit as they failed to realise the loan from the clients.
Although such loan accounts should be considered as classified, the accounts are being showed as regular, making loans riskier for the institutions and affecting the transparency of the balance sheet.
The financial institutions, as a result, are increasingly facing greater risks due to opacity in the process of loan grant and renewal, said the circular.
In this circumstance, the central bank asked the financial institutions to ensure reflection of the classified loan information in the account statements and realise the owing interest and principle before renewing any loan account.