Bangladesh Bank yesterday relaxed loan classification and provisioning for the cottage, micro and small businesses under the small and medium enterprise (SME) sector as part of its efforts to revive the economy.
From now on, continuous, demand and term loans of the three arenas will be considered to be of the substandard category under the classified loans if the borrowers fail to pay back the fund within a timeframe of six months to less than 18 months.
A substandard loan had earlier been those that had not been paid by borrowers within three months to less than nine months.
A loan will be treated in the doubtful category if clients do not pay back any instalment of the loan within the timeframe ranging from 18 months to less than 30 months. The previous tenure for doubtful loans was between nine months and less than 12 months.
If clients do not pay any instalment of a loan for 30 months or beyond, the entire fund will become bad or go under loss category of classified loans. Bad loans had earlier been those against which clients had not paid any instalment for 12 months and above.
Lenders will be allowed to keep provisioning against 5 per cent of their sub-standard category of classified loans to the cottage, micro and small borrowers against the previous ratio of 20 per cent.
For doubtful category loans, banks will have to ensure provisioning against 20 per cent of it against the previous ratio of 50 per cent.
The central bank, however, kept unchanged the provisioning ratio for bad category loans as lenders have to continue to keep 100 per cent provisioning for the loans.
Banks consider a client to be under the cottage arena when he/she borrows less than Tk 10 lakh from lenders, as micro from Tk 10 lakh to less than Tk 75 lakh and as small businesses from Tk 75 lakh to Tk 15 crore in the SME sector.
The latest initiative will help lenders lower provisioning compared with that in previous times, which will encourage them to give out more loans to the SME sector.
The majority of banks now show a reluctant attitude as the central bank has imposed a 9 per cent cap on all lending products since April 1.
The regulator of the banking sector has repeatedly asked lenders to speed up their loan disbursement to the SME sector, but they hardly bothered.