NBFIs allowed to take unrealised interest into profit
Earlier, the central bank allowed banks to show unrealised interest incomes as profits
The Bangladesh Bank has come up with a discount for non-bank financial institutions (NBFIs) also, allowing them to show unrealised interest incomes as profits if borrowers pay only 25% of their payable amounts of the current year.
The central bank on Sunday issued a circular giving an instruction detailing how NBFI's will transfer incurred interest against moratorium loans in their profits for 2021.
Earlier, the central bank issued a similar directive for banks allowing them to show unrealised interest incomes as profits.
Keep updated, follow The Business Standard's Google news channel
The latest circular instructed NBFI's that borrowers who paid 25% of their payable amount will not be marked as defaulter.
On the other hand, borrowers, who will fail to pay 25% of their payable amount by December this year, will be marked as defaulters, and NBFI's are asked to report to the Credit Information Bureau (CIB) as classified loans.
As NBFIs are taking a high risk for showing unrealised interest income as profits, they must maintain an additional 2% provision named "Special Provision" against those moratorium loans, read the circular.
According to industry insiders, the risk of taking unrealised income into profits is that if borrowers fail to pay the rest of the amount, it will increase default loans. A rise in default loans will increase provisioning requirements and high provisioning requirements will eat up profits.
The loan moratorium facility that has been running for the last two years will end this December.
Borrowers, who will avail this loan moratorium opportunity of paying only 25% of their payable amounts of the current year, are asked to pay the rest of the loans within 2022, the circular added.
