Cenbank eases exit policy for loan recovery, lowers down payment to 5%

Highlights:

• Required down payment lowered to 5% from 10%
• Banks must resolve borrower's application within 60 days
• Board of directors approval needed for loans exceeding Tk20 lakh

The Bangladesh Bank, in an effort to encourage loan repayments, has relaxed some of the terms of its exit policy for recovering defaulted or unpaid loans, including halving the required down payment for applications seeking exit facilities.

A circular in this regard was issued by the central bank's Banking Regulation and Policy Department (BRPD) today (10 March). The change comes as the previous policy failed to generate the expected response from borrowers.

From now, the required down payment is 5%, down from the previous 10%.

According to the circular, borrowers seeking exit facilities for various types of classified or unpaid loans can now apply with a 5% down payment. 

Additionally, banks must process and resolve the borrower's application within 60 days, it said.

Talking to The Business Standard, a senior official from the Bangladesh Bank explained that the exit policy was introduced primarily for borrowers looking to close their businesses or shift to other ventures and needed to clear their outstanding loans.

"Previously, the high down payment requirement discouraged borrowers from availing the exit facility. In many cases, borrowers found it easier to reschedule their loans with a lower payment instead. As a result, there was little interest in the scheme.

"Also, we received requests from various business associations to lower the down payment, which led to this policy change," the official said.

The circular further states that for loans up to Tk20 lakh, bank management can decide on granting exit facilities. For loans exceeding this amount, the decision will require approval from the bank's board of directors or executive committee. 

Previously, management could only decide on loans up to Tk10 lakh. 

The official said the increase in this threshold is aimed at reducing pressure on bank boards.

Talking on the matter, a deputy managing director of a private bank noted that under the exit facility, borrowers must repay the full loan amount within a maximum of three years.

"Once a borrower opts for the exit facility, the loan cannot be rescheduled or restructured. Additionally, they cannot take new loans or be removed from the defaulter list until the full repayment is made. As a result, only those who want to clear their default status entirely choose this option," he said.

"However, large business groups with significant classified loans usually prefer loan rescheduling or restructuring over the exit facility, as they find it difficult to repay the full amount within a few years," the bank official added.