Bangladesh Bank has instructed banks to strengthen the process of resolving disputes outside the court to recover defaulted loans quickly.
To this end, emphasis has been placed on the effective use of 'pre-suit mediation' to increase resolution through mediation before filing a case.
On Wednesday (March 11), the central bank's Banking Regulations and Policy Division-2 (BRPD) issued a circular in this regard. In this, the managing directors and chief executive officers of all scheduled banks in the country have been asked to take necessary measures.
The circular said that in order to avoid the protracted nature of the courts in the quick recovery of defaulted loans, emphasis should be placed on the use of alternative dispute resolution (ADR).
In particular, banks have been asked to take the initiative to actively implement the 'pre-suit mediation' method of resolving disputes between the parties concerned through mediation before filing a case.
The central bank said that each bank has set a target of at least 1% of its defaulted loans through the ADR system by June 30 of this year.
To achieve this goal, skilled and qualified mediators will have to be appointed and initiatives will be taken to resolve disputes through them.
The circular also sets out several eligibility conditions for the appointment of mediators.
These include being listed on the panel of a recognized mediation institution, not having any conflict of interest with the parties concerned, and having at least seven years of experience in law, commerce, banking or corporate management. In addition, there must be at least three years of experience in banking, commercial contracts or commercial dispute resolution.
In addition, the mediator must have a clear understanding of the policies of banking and financial institutions and must be trained in mediation from a recognized domestic or foreign institution.
At the same time, he must have impartiality, confidentiality, communication skills and practical experience in dispute resolution.
The circular further states that a person convicted in a criminal case, a person removed from a job or profession due to financial irregularities or moral turpitude, a defaulter or a person declared bankrupt by a court will not be eligible to be appointed as a mediator.
According to bankers, if the dispute resolution system through mediation outside the court is effectively implemented, the speed of loan recovery can increase and both time and cost will be reduced.
For this, they believe that the cooperation of borrowers along with the active initiatives of the banks is also important.
Central bank officials say that to reduce the pressure of defaulted loans, it is the need of the hour to make alternative dispute resolution systems more effective along with the courts. That is why initiatives have been taken to strengthen the ADR system.
