Dhaka, Bangladesh
Govt bailout for loan defaulters stalls

Govt bailout for loan defaulters stalls

HC stays loan-rescheduling package, says reward good borrowers, punish baddies

News Report A government move to bail out default borrowers through the rescheduling of their unpaid bank loans stalls for now following a court order on a writ petition. Under a finance ministry bailout package, sources said, the central bank recently issued a circular granting privilege to defaulters to borrow further making a 2.0 percent down payment until June 23. The privilege package also provides that a maximum 9 percent interest will be charged on the rescheduled loans and the tenure for the repayment is 10 years with a grace period of one year. Under the existing policy, defaulters can reschedule their classified loans by making a down payment of 10-50 percent on a case-to-case basis. The High Court Tuesday issued an order of stay to maintain a status-quo on the Bangladesh Bank notice that would entitle the defaulters to get further credits through straightening their account through this process of updating their loan portfolios. An HC bench comprising Justice FRM Nazmul Ahasan and Justice KM Kamrul Kader passed the order following a writ petition filed by Human Rights and Peace for Bangladesh. The court observed that Bangladesh Bank gave an opportunity to big loan defaulters through the notice which could create scope for laundering Tk 1.0 lakh crore. "On the other hand, the central bank is making the genuine businesspeople pay 14 to 15 percent interest, which is discrimination," says an observation in the court order. u Page 15 It also noted that the central bank has yet to execute the prime minister's instruction for lowering the banks' lending rate to single-digit level. Petitioners' lawyer Advocate Manzill Murshid said the defaulters can now no more get their loans rescheduled by paying a 2.0 per cent down payment following the order of stay. Under the latest measures meant for reining in the ballooning non-performing loans or NPL good borrowers are to get minimum 10 percent rebate on the total amount of bank interests or profits for each past 12 months in every September. New Finance Minister AHM Mustafa Kamal had said, "There'll be not a single paisa of default loan henceforth." And this measure announced by the central bank is seen as part of that remedial measure for addressing the problem of much-talked-about NPL that has created a virtual crisis in the banking sector. In its directive the Bangladesh Bank asked the banks to provide minimum 10 per cent rebate on the total amount of interest or profit accrued to the good borrowers for last 12 months every September. "In the case of current or call or term loan, banks will have to provide minimum 10 percent rebate to the good borrowers on their total amount of interest or profit for the last 12 months (from the last year's October 1 to September 30 of the current year)," according to the BB circular issued on May 16. It said good borrowers would be given the same incentives the following years if they retained their status. Besides, banks can also provide extended credit facilities as per the good borrower's requirements, the BB said. The BB asked the banks to identify the good borrowers in September every year and ensure incentives for them properly. Meanwhile, the High Court had earlier sought a list of defaulters by May 24. According to reports, the amount of default loan stood at Tk 93,911 crore at the end of last year (2018) after the writeoff of Tk 37,866 crore deemed unrecoverable through normal way. Total comes to around Tk 130,000 crore. If the rescheduled loans were taken into account, the total volume of 'stressed' loans was Tk 2.0 lakh crore. Planning Minister M A Mannan Tuesday agreed with economists and analysts that the balance sheet in banking sector ought to be cleaned up through pragmatic measures as it's the lifeline of the economy. "But there's no quick fix hereā€¦," he said at a live talk. Most economists opine that high-rated bank loans-rising up to 15-17 percent still inclusive of interest and 'hidden' charges--are a major cause of loan default and many industries and commercial ventures going bust. A directive recently came from the highest level of the government to contain interest rates in a 6.0 percent-9.0 percent bracket. That means bank have to take deposits at 6.0 percent interest and lend to borrowers at 9.0 percent at the maximum. But, practically, bankers found it difficult to com down to single-digit rate of lending, though interests on some types of deposits crashed into 'negative' zone on payments of different charges taking into account inflation. The court also took into account this point in banking operations. Economist Ahsan H Mansur said, "A holistic approach is imperative for a remedy before the problems could slip into a crisis." He stressed finding a remedy through bank-client joint initiative, as a banker said they wouldn't get back the money if the client is jailed.

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