Loan rescheduling: Banks can’t show interest as income without recovering principal
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SUNDAY, FEBRUARY 05, 2023
Loan rescheduling: Banks can’t show interest as income without recovering principal

Banking

TBS Report 
03 August, 2022, 10:10 pm
Last modified: 03 August, 2022, 10:25 pm

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Loan rescheduling: Banks can’t show interest as income without recovering principal

TBS Report 
03 August, 2022, 10:10 pm
Last modified: 03 August, 2022, 10:25 pm
Representational image.
Representational image.

The Bangladesh Bank has barred banks from showing interest earned from a rescheduled default loan in their income accounts until they fully recover the principal amount.

At the same time, provisions against the third and fourth rescheduling of bad loans cannot be transferred to income accounts without the recovery of the principal amount, said the central bank in a circular issued Wednesday, making some additions and clarifications in some areas of its recent circular on loan rescheduling.

According to the previous policy of the central bank, in the cases of the rescheduling of default loans, banks could book interest income to their income accounts even if principal amounts remained unrealised.

Besides, according to the revised policy, a rescheduled loan will be directly classified as a bad loan in case six monthly instalments (including principal and interest) and two three-monthly instalments remain unpaid.

Earlier, a rescheduled loan could be classified as a bad loan after about 15 months of non-payment.

As per the new policy, the Bangladesh Bank can take a final decision regarding the classification of a rescheduled loan after checking whether appropriate conditions have been met during its inspection. But, this was not clarified in the previous circular.

Also, a clause has been newly added to section 9 of the previous circular: In rescheduling and restructuring any loan, approval must come from a level above the one from where the loan was initially approved. At the same time, the head office of the bank should be informed about it.

However, if any loan is approved by the bank's board of directors, it has to be rescheduled and restructured from the board.

Apart from loans given to the agriculture sector, and cottage, micro, and small enterprises, the approval of the bank's board of directors is a must for rescheduling any loan for the 3rd and 4th time.

Economy / Top News

loan rescheduling / Bangladesh Bank

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