The government is set to offer defaulters another lifeline, allowing them to avail easy loan rescheduling facility -- a move that has been met with suspicion by experts.
The decision came yesterday at a meeting chaired by Finance Minister AHM Mustafa Kamal and attended by high-ups of all regulatory authorities concerned.
Defaulters will be allowed to reschedule their loans for 12 years after furnishing 2 percent down payment under a special package, Kamal told the media after the meeting, which was held on the planning ministry premises.
At present, defaulters can reschedule their loans for at most 3 years by providing 10 to 15 percent down payment.
“The new policy is a special arrangement for those who are not wilful defaulters,” Kamal said, adding that the relaxed policy will come into effect from May 1 and the Bangladesh Bank will issue a notice within a month.
Both small and large borrowers will be able to get the rescheduling facility and a 7 percent simple interest formula instead of existing compound formula will be applied.
The defaulters will have to pay instalments on a quarterly basis, he said.
The principal amount plus charged interest will be rescheduled under the scheme and the interest amount blocked in a suspense account will be waived.
If their payments are regular, borrowers will also be able to get fresh loans from the same bank after rescheduling.
“Only those with genuine reasons for becoming defaulters can avail this facility. The wilful defaulters will be penalised.”
The previous transaction records of the clients would inform whether they are wilful defaulters or not. For instance, an exporter who received export proceeds for 10 times but did not pay back his/her bank loan cannot be a good borrower.
The government will also conduct a special audit to identify the wilful defaulters, Kamal added.
The bailout package though was met with suspicion by experts.
“The policy will destroy the banks,” said Khondkar Ibrahim Khaled, former deputy governor of the Bangladesh Bank.
Banking records show that if a loan remains unrecovered for a long time, the chances of recovery are low.
“This has been ignored by the policy. Some influential politicians, who are large loan defaulters, are probably involved in the formulation of such a policy,” he added. The policy was drafted by a committee formed by the finance ministry in June last year with a view to preparing a bailout package for loan defaulters in three sectors -- trading, shipbuilding and steel -- to help them jumpstart their businesses.
The committee, led by Agrani Bank Chairman Zaid Bakht, submitted its report to the ministry, which then forwarded it to the BB in January for vetting.
It was the BB that recommended offering the package to all sectors and not just the three and also including the borrowers that had availed the large loan restructuring schemes in the past.
The central bank said most of the borrowers who availed the previous scheme did not pay back loans as per the restructuring conditions, as a result of which the banking sector's non-performing loans are spiralling.
“This is an artificial solution to reducing the default loans,” said Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD).
The policy would not bring any good to the sector because the previous bailout package failed to regularise the default loans, she added.
In January 2015, the central bank offered special rescheduling facility to borrowers who had loans of at least Tk 500 crore each. For down payment of just 1-2 percent -- instead of the usual 10-15 percent -- they could reschedule their loans.
Some 11 large borrowers took up the offer from the BB and had their loans amounting to Tk 15,000 crore restructured.
Of those, only one complied with the conditions laid down in the policy.
Bangladesh Bank Governor Fazle Kabir, Finance Secretary Abdur Rouf Talukder, Banking Division Secretary Asadul Islam and other higher ups from Bangladesh Securities and Exchange Commission (BSEC) and Insurance Development and Regulatory Authority (IDRA) were present at the meeting.