When a businessman applied for rescheduling of his default loans in accordance with the latest Bangladesh Bank guideline, his banks refused to do it.
The controversial guideline issued in May this year made way for a much compromised down payment to regularize loans. Businessmen who have defaulted on their loans until December last year can pay only 2 percent of loans rather than the usual 10-15 percent and get their loans regularised.
In case of this particular businessman, a rice miller himself, the banks simply said it will not reschedule unless 5 percent of loans is given as down payment.
The businessman, who had taken Tk 7 crore from six banks and non-bank financial institutions, then brought the matter to the notice of the central bank through a complaint last month.
The Bangladesh Bank has received hundreds of such complaints as the banks simply find the new ‘one-time’ rescheduling guideline beyond any business wisdom.
It also reveals the inherent weakness of such directives that defy market mechanism.
In the latest guideline, it was said a maximum 9 percent interest will be charged on the rescheduled loans while the existing interest rate is 12-16 percent. Besides, the tenure for repayment has been stretched to 10 years with a grace period of one year.
But like this latest move, all other central bank efforts to offer exit routes to defaulters now seem to have faltered.
For example, in 2015 the Bangladesh Bank had issued another guideline for large borrowers.
The big borrowers were given restructuring benefit by making only 1-2 percent of loans as down payment and a maximum repayment tenure of 12 years.
Such benefits were supposed to be a one-time offer on the condition that if the firms fail the banks will take legal action.
But today as it stands, all the 11 big business groups which restructured their default loan under this large loan restructuring package have defaulted on their loan repayments.
Some of the business groups are now lobbying with the central bank to have their default loans rescheduled again.
One such big group, Beximco, has already submitted a proposal to the BB, after the central bank refused it the facility once before, for further rescheduling of its restructured loans from Sonali Bank for another 12 years.
The central bank is likely to place the proposal at its board meeting today (August 27).
If this group gets BB approval for rescheduling, there are other groups waiting on the fence to apply for the same, proving that such central bank efforts make bear no meaning.
Of the 11 business groups that took this facility of large loan restructuring, five have already defaulted again. The groups are AnonTex, SA Group, MR Group, Rising Steel and Keya Group.
Two other groups -- Beximco and Sikder – have failed to pay two instalments as of March, according to a central bank report.
However, failure to repay two consecutive instalments will be considered as default, and the restructuring facility will stand cancelled, according to the restructuring guideline.
One of the companies, Ratanpur Group, has failed to pay 29 instilments and remained unclassified after procuring a stay order from the High Court.
The remaining three -- Jamuna, Abdul Monem and Thermax -- which were paying installments regularly, have stopped their payments.
Thus, the restructuring policy neither helped the banks reduce the default loan amount nor brought out the defaulters from their default status as the policy seems to have backfired.
And bad loans have kept on piling.
In the last four years, the total amount of restructured loans increased by 15.25 percent to Tk17,225 crore from Tk15,000 crore in 2015.
The central bank, instead of taking lessons from past experience, issued the new rescheduling facility as an exit route for defaulters.
Syed Mahbubur Rahman, managing director of Dhaka Bank, said that most of the clients who restructured and rescheduled their loans, could not continue their repayment.
As a result, the banks too, are reluctant to reschedule default loans, he added.
Mashrur Arefin, managing director of City Bank, said banks are still reviewing the new rescheduling policy to see how it would impact their business operation.
As a result, banks have not started implementing the new rescheduling policy as yet, he added.