2% down payment, one-time exit facility, 10-year loan repayment
Bangladesh Bank yesterday granted a huge waiver for loan defaulters to expedite debt servicing in the banking sector. Experts, however, criticized the latest policy given effect through two separate central bank circulars yesterday.
The latest directive of the central bank says defaulters can regularize their bad loans now by paying only a 2% down payment, instead of 10 to 50 %.
Although almost all sectors have been included for the latest loan rescheduling policy, the circular specifically mentioned a number of privileged priority sectors.
Trading sectors like wheat, food items, edible oil and refinery, and ship breaking, and other sectors where a huge number of bank loans have remained unpaid for long, will be considered for the latest loan rescheduling policy, the circular said.
Defaulted loans at specialized banks sanctioned for purposes other than agriculture will also be entitled to the facility, it added.
Other defaulted loans caused by factors beyond the control of otherwise 'good' borrowers will also be eligible for the rescheduling policy, the Bangladesh Bank circular elaborated.
In all cases, defaulters have to apply for the facility within 90 days of the circular. The loan defaulters have to repay their rescheduled loans within the next 10 years, with a one year grace period, according to the circular.
The rescheduled loan would have to be repaid at only 9% interest rate, said the circular.
Besides the facility of loan rescheduling, the central bank in the circular said banks could waive all interest for defaulters, depending on the bank-client relationship.
Giving another facility to defaulters, the circular 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 the facility, defaulters have to pay the outstanding amount within a year.
Currently, a bank's cost of funds is typically between 3 and 5%.
Default loans as of December 31, 2018, will be considered for the loan rescheduling policy and ‘One Time Exit’ facility, the circular further said.
In another circular, Bangladesh Bank offered a 10% rebate for borrowers in good standing .
All scheduled banks have been instructed to issue ‘Special Appreciation Letters’ to their good borrowers, and the profiles of top 10 good borrowers have to be published in the annual reports of banks, and the good borrowers must be recognized at the annual meetings of banks.
The Bangladesh Bank outlined a number of criteria to identify good borrowers.
They include, no record of loan default in the last one year, and they will be selected in September of every year. Their rebate of 10% will continue as long as the borrowers remain good borrowers, the circular said further.
However, former Director General of Bangladesh Institute of Bank Management, Toufiq Ahmed Chowdhury, says the new waivers for defaulters would cast a shadow over the whole banking sector.
“Good borrowers will be discouraged to repay their loans. The latest directives of the central bank will jeopardize the banking sector, while loan defaulters will gain undue advantage,” Toufiq told Dhaka Tribune.