The latest loan rescheduling policy of the Bangladesh Bank will make the recovery of defaulted loans tougher, said experts, adding that if banks cannot recover their dues, they will face difficulties in paying back what customers deposited.
This will also affect cash flow to banks as customers will lose interest in depositing money in banks, they added.
People concerned said willful loan defaulters will feel more encouraged by this policy of the central bank. Even if the volume of defaulted loans will be low on paper because of the policy, banks will not be able to retrieve their loans.
The Bangladesh Bank has restructured its loan rescheduling policy by widening the repayment period by nearly five times and reducing down payments by four times to facilitate loan defaulters to keep their accounts regular.
From now on, a big loan defaulter having a term loan above Tk500 crore can get repayment period up to 29 years.
In the case of down payments, defaulters will provide the highest 4.5% of the total overdue amount or 7% of overdue instalment, whichever will be les, while previously defaulters had to pay the highest 15% of overdue amount during loan rescheduling, according to a central bank circular issued last week.
Such big offers to defaulters in the policy have not only made bankers and experts feel sceptical about the effectiveness of the policy but also have led to questions among various officials of the Bangladesh Bank.
Saleh Uddin Ahmed, former governor of the Bangladesh Bank, said the wholesale concessions offered by the central bank in its new loan rescheduling policy are not desirable.
The offers should have been made on a case-by-case basis, he observed, adding that some facilities might be offered to those who are really in disadvantageous situations.
"As a result of the extensive offers, the loan money will not come back to the banks, as a result of which the banks will face a liquidity crisis. Besides, small and medium enterprises will not get loans."
He further said the Bangladesh Bank should review the policy for six months and then reverse it if necessary.
As per the new rescheduling policy, banks can reschedule a term loan of Tk500 crore or beyond four times for a total period of 29 years – eight years each on the first two occasions, and seven years, and six years in the latter two instances.
Loans of Tk100 crore to Tk499 crore can be rescheduled four times for a total period of 25 years – seven years each on the first two occasions, and six years and five years on the latter two, respectively. On the other hand, loans of less than Tk100 crore can be rescheduled for a total period of 21 years.
Apart from this, banks can also restructure loans regularly and in such cases, 50% of the remaining term can be extended without any down payment.
Previously, a loan in the first stage of default status could be rescheduled for three tenures of five years.
Meanwhile, doubtful loans – in the second stage of the default status – could be rescheduled thrice for a period of four and a half years. The repayment tenure was similar in the case of rescheduling bad loans.
Managing directors of several state-owned banks, however, have lauded the central bank's decision to leave the implementation of the new policy up to bankers terming it as a "timely decision".
The central bank will formulate policies, and banks will implement those, they said, adding that many customers default on loans for legitimate reasons but have to follow lengthy processes to reschedule their loans. As a result, they become defaulters and do not get fresh credit facilities.
Now borrowers will be able to reschedule their loans easily, and will feel encouraged to repay loans.
In this regard, several officials of the central bank said on condition of anonymity that the new policy of loan rescheduling states that the rescheduling application of habitual loan defaulters will not be considered, but it is not clear who are the habitual loan defaulters.
They also said although the Bangladesh bank circular mentions that the maximum period of rescheduling will not apply equally to all borrowers, it will not be the case in reality. All customers will take the same benefits.
Besides, the circular mentions that loans created through irregularities will not be considered for the offers, but it is also not clear how banks will determine such loans.
In this regard, Mutual Trust Bank Managing Director Mahbubur Rahman also said it is a good thing that banks have been given the authority to determine which borrowers will get the rescheduling facilities.
Banks will provide the facility to good customers as per their wishes, he said. He also mentioned that surveillance of the Bangladesh Bank is important in this respect.
The managing director of another private bank on condition of anonymity said this policy will make loan defaulters more interested.
Many customers will delay payment even if they have the opportunity, and some will simply take the money elsewhere, he added.
He also said that banks would take legal action if they could not recover money from customers. But, the new policy has come up with big offers for the defaulters. Many people who pay back loans regularly will now reschedule their loans instead of repaying them on time.
In this way, banks will fall in danger, with their money stuck. At one stage, they will face a liquidity crisis, he added.
Ahsan H Mansur, executive director of the Policy Research Institute (PRI) told TBS that many businessmen are in a good position, their cars, houses, and assets are increasing, but they are not repaying their loans. The central bank's new policy will cheer them up.
"They are being given 29 years, and I doubt they will repay their loans. Many people are running businesses and still not paying back loans. They are forming multiple companies and investing in them even if the companies in the name of which they are taking loans are not in a good position."
He further said the businessmen demanded that they should not be regarded as defaulters in any way so that they do not lose access to credit, and the central bank has formulated its new policy as per their demand.
Now the central bank has entitled the bank authorities to determine whom they will provide the rescheduling facility. As the owners of the banks themselves are big borrowers, they will take advantage of this facility in collaboration with each other.
The new policy will be discussed in the central bank's meeting with bankers today. At the meeting, the managing directors of various banks will highlight the advantages and disadvantages of the new rescheduling policy.