Cenbank allows loan rescheduling for 10 years to facilitate cold storage business

Cold storage owners can now reschedule their default loans for a period of 10 years, according to a circular issued by the Bangladesh Bank on Thursday.

This move by the central bank is aimed at supporting the cold storage business, recognising its significance in preserving perishable agricultural and food products.

"Prices of goods increase at the end of every season, but farmers are deprived of expected prices. In addition, a large amount of crops are damaged every year due to a lack of preservation," reads the circular.

According to the circular, borrowers from the cold storage business will be granted a one-year grace period for the repayment of their rescheduled loans.

To initiate the loan rescheduling process, customers interested in rescheduling their default loans must apply within the next three months and submit the necessary down payment in accordance with the existing policy. The implementation of the rescheduling will be carried out by the relevant banks within the following two months.

Under the current rules set by the central bank, the down payment for rescheduling loans below Tk100 crore stands at 4.50%, while loans exceeding Tk500 crore require a down payment of 2.50%.

At present, the highest rescheduling period for term loans is eight years, and that of working capital loans is seven years.

Md Mezbaul Haque, executive director and spokesperson of the Bangladesh Bank, told The Business Standard, "Ours is an agriculture-based country. We are producing a lot of products but due to a lack of storage facilities, huge amounts of crops are wasted every year. For this reason, the cold storage businesshas been given this facility."

He further said that many cold storage owners have closed their businesses due to defaulting on loans, but now they can reopen their cold storages by regularizing their default loans. At the same time, they will be able to get new loans according to their needs.

According to sector insiders, Bangladesh currently has 415 cold storages, with approximately 25 lakh tonnes of potatoes stored in 350 of these facilities. The remaining cold storages accommodate various imported food products.

As per the central bank's circular, two separate calculations must be made for the principal and interest of customers' loans as of 30 June. Interest will be applied to the principal based on the existing rules and the bank-customer relationship. Even if a loan is rescheduled, provisions must be maintained, and the provision cannot be transferred to the income sector without the actual recovery of the loan.

The central bank says that banks must recover the principal amount of a loan in the first place, and then they will collect the interest saved as a block. However, interest and principal must be recovered within nine years, it clarifies.

These loans will be repaid in six months' instalments, says the central bank's circular, adding, "However, the boards of directors of the banks will decide at their own discretion to give interest waiver facility on these loans."

Customers who are currently in default even after taking the rescheduling and restructuring facilities earlier will also get the rescheduling facility. However, this facility will not be applicable in the case of loans created through fraud.