Bangladesh Bank has taken initiatives in loan activities according to international standards. It has been instructed to reserve provisions in proportion to the level of default and the outstanding period of the outstanding loan. According to the new rules, if a loan is not repaid for 3 months, it will be considered default. And if the loan is bad quality, 100 percent provision (safety reserve) will have to be kept.
On Wednesday (November 27), the Banking Regulations and Policies Department of Bangladesh Bank issued a notification in this regard. The new directive will come into effect from April 1, 2025.
According to the new rules, if the loan installment is not paid on time, the loan will be considered default. If the expiry period is between 3 and 6 months, it will be considered low quality, between 6 and 12 months, it will be considered doubtful and if it is more than 12 months, it will be considered bad. It has been asked to reserve 1 percent for regular loans and a maximum of 100 percent provision against default. However, no explanation was given in the notification regarding regularization of loans through one-time payment and rescheduling.
The central bank’s notification said that in the light of the Basel-3 principles, which are the prevailing practice in global banking practice, in all types of loans, the loan will be considered overdue from the day following the date fixed for repayment or adjustment. If the overdue period is between 3 and 6 months, it will be considered substandard, between 6 and 12 months, it will be considered doubtful, and if it is 12 months or more, it will be considered bad or harmful. At the same time, in the case of standard loans, 1 percent of the loan balance will be reserved as general provision, and in the case of special mention accounts, 5 percent of the loan balance will be reserved as special provision.
And in the case of defaulted loans, if they are substandard, 20 percent of the provision base will be reserved, if they are doubtful, 50 percent of the provision base will be reserved, and if they are bad or harmful, 100 percent of the provision base will be reserved.
The notification further states that if any loan or advance is defaulted on a sub-standard and doubtful basis, then the interest earned on that loan will have to be deposited as interest suspense instead of being credited as income. If any loan or advance is defaulted on a loss-making basis, interest will be stopped from being charged on the same account. If any interest is charged on a loss-making loan account for any special reason, it will be stored in the suspense account. In this case, it cannot be credited as income. If the defaulted loan or some part of it is recovered, it can be shown as loan adjustment.
According to the relevant sources, the amount of defaulted loans in the banking sector has increased to 2 lakh 84 thousand 977 crore 31 lakh taka at the end of the September quarter of this year. Earlier, till June last year, the amount of money stuck in 67 thousand 519 cases pending in the financial loan court was 2 lakh 9 thousand 691 crore taka and the amount of money pending in writ cases was 1 lakh 53 thousand crore taka. The amount of unpaid loans as a special mention is about 50 thousand crore taka.
In total, the unpaid loans outside the declared defaulters are about 4 lakh 13 thousand crore taka. Apart from this, there are 4 thousand crore taka in certificate cases and several thousand crore taka in undisclosed defaulters due to audit. Under the new rules, the defaulted and unpaid loans will stand at about 6 lakh 98 thousand crore taka. The total loans disbursed till September is 16 lakh 82 thousand crore taka. Accordingly, unpaid loans are 41.50 percent of the total loans.
