A writ petition has been filed with the High Court seeking a stay order on the circular issued by the Bangladesh Bank (BB) relaxing the policy for rescheduling defaulted loans.
On 18 July, the central bank issued a circular giving significant concessions to the borrowers to reschedule the loans with reduced down payments.
As per the circular, a defaulter will be able to reschedule the loans up to four times with 2.5% to 5% down payments, which was 10% to 30% earlier.
The circular also stated that the board of directors of banks will be able to make other arrangements with the borrowers/defaulters for rescheduling the loans, a facility which was previously authorised by the central bank only.
The move triggered a stir among economists and sector people, forcing the Bangladesh Bank to respond, saying the scope will ensure adequate credit flow and maintain stability in the banking sector.
On behalf of the Human Rights and Peace for Bangladesh (HRPB), Advocate Manzill Murshid filed the writ on Sunday challenging the legality of the circular.
The finance secretary, governor of Bangladesh Bank and the related parties were made respondents in the writ.
Advocate Manzill Murshid told The Business Standard (TBS) that a High Court bench may hear the writ this week.
He said the Bangladesh Bank reduced the down payment for non-performing loans to an extent that will also allow big defaulters with a loan of Tk500 crore and above a maximum of 29 years to make repayments.
As per the previous policy, borrowers had to repay their loans within 5 to 8 years and a maximum time of two years was given for repayment of such loans, he said.
"It is not clear why the Bangladesh Bank took such a decision. A group of defaulters will take full advantage of this circular. As a result, the loans will not be repaid for a long time, declining the banks' liquidity. Their ability to provide new loans will decrease. Banks may even have trouble returning money to depositors," he said.
"That is why we have challenged the central bank's decision," Manzill Murshid added.
The circular, however, mentioned that no willful or habitual loan defaulter shall be given the opportunity to renew the loan. A defaulted loan can usually be renewed three times. However, for the sake of debt collection, the defaulted loan can be renewed in four stages and cannot be renewed more times than that.
According to the current rescheduling policy, there is no renewal scope for more than three times. However, there is an opportunity for more than three renewals based on the bank-customer relationship. Using this opportunity, some loans have been renewed 17 times.
The circular said, in the first and second phase, term loans of less than Tk100 crores can be rescheduled for a maximum of 6 years with a grace period. Term loans below Tk100 to Tk500 crores can be renewed for 7 years and loans of Tk500 crore and above can be renewed for a maximum of 8 years.
Also, current and demand loans less than Tk50 crores can be renewed for 5 years, Tk50 crore to Tk300 crores for 6 years and Tk300 crores and above bank loans can be renewed for 7 years.