BB won't be tough on loan defaulters now

Bangladesh Bank (BB) has decided not to go for implementing an International Monetary Fund (IMF) suggestion at the moment that asked to be tough on loan defaulters and to increase the bank capital.
An IMF team, which visited Dhaka last month, had suggested that the central bank declare a loan as outstanding if it becomes overdue for three months. As per the existing rules, a loan is declared default if it is overdue for six months.
The IMF team also made suggestion to raise bank capital to Tk 500 crore from the existing Tk 100 crore in a bid to make strong capital base of commercial banks.
The government recently amended the Bank Company Act, 1991 through an ordinance, which increased the amount of bank capital to Tk 200 crore, and it will be executed very soon.
Sources said the central bank is considering giving the commercial banks at least two years time for increasing the money.
A BB official observed that implementation of IMF suggestion to raise bank capital to Tk 500 crore is not practical, considering the financial condition of many small banks. Many of them do not even have the capacity to raise the bank capital to Tk 200 crore at the time as per the recent government order, he added.
"So we are thinking about giving them at least two years to raise the bank capital in phases," he said.
BB sources said the central bank itself wanted to redefine default loan even before the IMF suggestion by declaring a loan as default if it becomes overdue for three months.
However, the government high-ups did not approve the idea, taking into account the negative impacts on banking and business sectors.
Finance ministry sources said the government is concerned at the present state of the country's economy when business is witnessing a sluggish growth. "If the government redefines the default loan it will increase total volume of default loans and at the same time businessmen will suffer, thus businesses will be hampered," a source said.