The business person or individual applies for a loan from a bank or financial institution on an installment basis or another basis to meet their business capital needs or personal or family requirements. But due to some unavoidable circumstances like; fall down in business, natural calamities, physical illness and so on some borrowers became defaulters.
To cope with this situation Bangladesh Bank allows the facility to be renewed or extended under unfortunate circumstances that are beyond the control of the borrower. To get this facility, the borrower must meet up with certain conditions for Rescheduling classified Loans as outlined in different Bangladesh Bank circulars from time to time.
The purpose of this guide is to provide a detailed overview of the guidelines provided by Bangladesh Bank for Loan Rescheduling in Bangladesh.
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Prescribed Guidelines for Loan Rescheduling in Bangladesh:
Banks must comply with the following instructions prescribed by Bangladesh Bank while considering applications for loan rescheduling of non-performing loans (loans classified as Sub-standard, Doubtful and Bad/Loss). The borrower also has to comply with these instructions along with banks to get a Loan Rescheduling facility for classified Loans.
a) The bank must have a policy approved by its Board of Directors in concrete that defines the circumstances and conditions under which a loan may be rescheduled. Also, include controls to avoid the routine rescheduling and repeat rescheduling of loans in those cases where borrowers are experiencing financial difficulty or there is doubt that the full amount of the loan will be recovered.
b) After getting an application for rescheduling the loan from the borrower, the bank shall meticulously verify the reason mentioned by the borrower why the loan has become non-performing. If the bank found that the borrower has diverted funds elsewhere or he/she is a habitual loan defaulter, the bank shall not consider the application for loan rescheduling.
c) For giving a rescheduling facility to the borrower, the bank must collect the required down payment in cash at a time, the bank must forward the application within 03 (three) months upon receipt from the borrower. If the borrower gives any cheque, pay order or any other instrument against down payment. the bank must ensure encashment of such an instrument before processing of the rescheduling case. Any previous payment from time to time shall not be treated as a down payment.
d) Banks while considering loan rescheduling, must consider overall repayment capability of the borrower taking into account the borrower’s liability position with other banks and financial institutions.
e) Banks shall review the borrower’s cash flow statement, audited balance sheet, income statement and other financial statements in order to ensure whether the borrower would be able to repay the rescheduled installments/existing liability or not.
f) If required, bank officers shall conduct spot inspections of the borrower’s company/business place to ensure that the concerned company/business enterprise would be able to generate a surplus to repay the liability of rescheduling. Banks shall preserve such reports in their branches for Bangladesh Bank’s inspection.
g) If a bank is satisfied after due diligence as mentioned above that the borrower will be able to repay, the loan may be rescheduled. Otherwise, the bank shall take all legal steps to realize the loan and make necessary provisions.
h) Rescheduling of any loan must be justified in a written statement by the bank’s Credit Committee. The statement must give reasons why the rescheduling is beneficial in the long run profitability and capital adequacy of the bank, including the factors that cause the Credit Committee to believe that the loan will ultimately be repaid in full. The statement must also explain the impact of this rescheduling on the bank’s liquidity position and the needs of other customers.
Time Limit for Loan rescheduling:
The rescheduling shall be for a minimum reasonable period of time. Bank can reschedule a loan for three times but may allow for 4th time to recover the loan. Time limit for rescheduling of different categories of loans will be as follows:
Loan Types | Outstanding Amount | Time Limit (With Grace Period) | |
For 1st & 2nd time | For 3rd & 4th time | ||
Term Loan | Below 100 Crore | 06 Years | At least one year less from 1st & 2nd time. |
100 Crore and above but less than 500 Crore | 07 Years | ||
500 Crore and above | 08 Years | ||
Continuous and Demand Loan | Below 50 Crore | 05 Years | |
50 Crore and above but less than 300 Crore | 06 Years | ||
300 Crore and above | 07 Years | ||
Agri Loan | Time limit for 1st time will be highest 03 years and for 2nd, 3rd & 4th times, Time limit will be highest 02 years06 Months. | ||
Grace Period: Grace Period will be determined by the banker-customer relationship for 06 months. But bank may allow for 01 year depending on the repayment capacity of the borrower.
N.B.: Time limit is not the same for all borrowers. It will be determined by the banker-customer relationship.
Down payment amount for Reschedule:
The borrower has to deposit the down payment amount if he/she wishes to get rescheduled facility. Down payment amount will be determined as follows:
Loan Types | Outstanding Amount | On Overdue | On Total outstanding | Remarks |
Term Loan | Below 100 Crore | 7.00% | 4.50% | Bank may collect down payment amount of overdue or outstanding which is lower. But it may not same for all. It may vary depending the repayment capacity of the borrower. |
100 Crore and above but less than 500 Crore | 6.00% | 3.50% | ||
500 Crore and above | 5.00% | 2.50% | ||
Continuous and Demand Loan | Below 50 Crore | - | 4.00% | |
50 Crore and above but less than 300 Crore | - | 3.00% but not less than 2.00 Crore. | ||
300 Crore and above | - | 2.50% but not less than 9.00 Crore. |
If the borrower fails to repay all liability after getting reschedule facility for four times bank can take legal action. Though the bank can take any legal action without giving rescheduling facility to recover loan outstanding.
Related CIrcular: https://www.bb.org.bd/en/index.php/mediaroom/circular