NBFI boards can reschedule loans with just 4% down payment

The Bangladesh Bank has now empowered the boards of non-bank financial institutions (NBFIs) to reschedule and restructure their defaulted loans like banks.

From now on, a defaulted loan can avail the rescheduling facility for up to 21 years in four phases. And there will be an opportunity to renew the loan with only a 4% down payment in the first phase, according to guidelines the Bangladesh Bank issued on Sunday.

The down payment has been fixed at 5% of the total outstanding for the second time and 6% for the third and fourth times.

Earlier, borrowers had to make a down payment of 10%, 20% and 30% for the first, second and third times, respectively.

In addition, the new guidelines allow rescheduling with a payment of 7% of overdue instalments for the first time, 8% for the second time and 9% for the third time. Earlier, borrowers had to pay 15%, 30% and 50%, respectively.

Now defaulted loans can be rescheduled by making a down payment of the amount which is less between the outstanding balance and overdue instalments.

According to the circular, these loans will be rescheduled or restructured based on the institution-customer relationship as per the approved policy of the financial institutions. In this case, there will be no need for approval or no objection from the Bangladesh Bank.

The rescheduling period is a maximum of six years in the first phase, and a maximum of five years each in the second and third phases. As per the earlier policy, defaulters used to get a grace period of two to four years in three phases.

However, these loans can be rescheduled even in the fourth phase if the business or the respective industry is damaged beyond the control of borrowers.

In this case, the benefit and down payment will be as per the third phase. However, there was no scope for rescheduling loans in the fourth phase of the previous policy.

In addition, borrowers will get a grace period of six months to reschedule their loans from now on. Earlier there was no policy on debt restructuring of financial institutions. The facility has been introduced by the new policy.

The central bank said that the loan cannot be rescheduled again unless at least six monthly instalments or two quarterly instalments of the rescheduled loan are paid. However, if one fails to repay the loan even after four rounds of rescheduling, it will be treated as a bad loan. In this case, legal action will be taken compulsorily to retrieve the loan amount.

For banks, according to the central bank guidelines, if borrowers fail to pay two three-monthly instalments, it will become a bad loan. Then rescheduling has to be done afresh.

The new policy states that only defaulted loans can be rescheduled. However, the loans in standard positions can be restructured only. In addition, financial institutions should have policies approved by their board of directors regarding rescheduling or restructuring.

According to the circular, the financial institutions will not be able to take any amount against the rescheduled or restructured loans to the revenue sector without the recovery of the principal amount of the loan. Also, fraudulent loans cannot be rescheduled or restructured in light of this policy.

Financial institutions will take the information in the specified format for rescheduling or restructuring and store it on file for inspections.

No interest or profit could be waived in case of rescheduling or restructuring without covering the cost of funds. That is, it must be ensured that the amount rescheduled or restructured is not less than the principal and fund expenditure.

It is also mentioned in the circular that an inspection team from the Bangladesh Bank can scrap rescheduling or restructuring if there are any violations of the guidelines.