The High Court (HC) on Sunday upheld the Bangladesh Bank's circular as legal for three months, offering loan defaulters the rescheduling of classified loans with a 2% down payment at a 9% interest rate, and a 10-year payback period, including a one year grace period.
The HC in its verdict also noted that extending the special rescheduling facility is, however, subject to the BB's will. It says the BB can also extend fresh credit on payment of 15% of the principal amount on previous defaulted loans, to clients who have applied for special rescheduling privileges with due diligence.
In the verdict, the HC directed the BB to form a nine member fact finding committee to dig out loopholes in both public and private banks to identify the reasons default loans went up abnormally, triggering a liquidity crunch at banks.
The Master Circular on Loan Rescheduling 2012 says a borrower must pay at least 15% of the outstanding balance to avail a fresh loan from the rescheduling bank.
In the case of borrowing from other banks, the borrower has to submit a No Objection Certificate (NOC) from the rescheduling bank or financial institution and clearance from the Credit Information Bureau to this effect.
The HC bench of Justice JBM Hassan and Justice Md Khairul Alam gave the instructions after hearing the petition filed by Human Rights and Peace for Bangladesh.
The master circular also said exporters may be granted further credit facilities subject to settling at least 7.5% of the outstanding balance.
However, if the loan is somehow connected to the director of any bank, prior approval of Bangladesh Bank will be required.
Also, information on such rescheduled loan accounts shall be reported to the Credit Information Bureau (CIB) of Bangladesh Bank, said the circular.
Form a nine member committee to identify loopholes
The HC, on the same day, asked the Bangladesh Bank to form a nine member committee that will find out loopholes in the lending and recovery of bank loans. The committee will be formed with people having expertise in banking and financial sectors.
The same bench also asked the authorities concerned to take necessary opinions and suggestions from the central bank in the appointment of the top five officials at any bank.
The HC also said interest rates for bank loans shall be lowered down to single digits as decided by the government.
After the hearing, Advocate Manzil Murshid who stood on behalf of HRPB, said the nine member committee will form a fact finding committee will identify weaknesses in banks, particularly concerning loan approval and recovery, and related irregularities.
The committee will make recommendations to get rid of the problems which will later be recommended by the Bangladesh Bank.
The High Court on February 13, asked the authorities concerned to submit a list of loan defaulters and money launderers over the last 20 years.
It also issued a rule asking the authorities to explain why an order should not be given to form a powerful commission to identify past irregularities and corruption in the banking sector.
On May 16, it also ordered Bangladesh Bank to submit a list of borrowers with over Tk1 crore in default loans by June 24.
On May 21, the High Court issued a status quo till June 24 on the central bank’s May 16 circular following a writ filed by Human Rights and Peace for Bangladesh.
On June 24, the High Court extended the freeze order by two months, till August 24.
On October 20, the court extended its earlier order which ruled that defaulters taking the opportunity to reschedule their bank loans with a 2% down payment, cannot get any fresh loans.
On the day, the HC said the extension order will remain in force for a month or till disposal of the rule issued by the HC on this issue.
