Large defaulters with a loan of Tk500 crore and above will now enjoy a maximum of 29 years to make repayments with rescheduling facilities for up to four times.
They will also be offered a mega discount in down payments for rescheduling 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.
A master circular was issued in this regard on Monday with big offers for big defaulters aiming to bring down classified loans, which has been rising alarmingly since last year.
Currently, a defaulter with any amount of long-term loan can get a maximum of six years to repay through rescheduling, while the repayment period is 3.5 years for a short-term loan.
The number of times they are allowed to reschedule loans is a maximum of three for both long- and short-term loans.
In the new circular, rescheduling facilities are separate for big and small loan defaulters.
A big loan defaulter having a term loan above Tk500 crore can get repayment period up to 29 years while agri and micro loan defaulters will get up to 10.5 years to repay loans through rescheduling, according to the circular.
Term loan is given for a maximum of five years.
Both large and small defaulters will be allowed to reschedule four times.
In the case of down payments, defaulters will provide the highest 4.5% of total overdue amount or 7% of overdue instalment, whichever will be less, according to the new circular.
At present, defaulters have to pay the highest 15% of overdue amount during loan rescheduling.
The current practice is that if any borrower fails to pay the required down payment or wants to extend the repayment period beyond the regulatory limit, lenders send the proposal to the central bank for final approval.
Following the lenders' proposals, the central bank has been allowing defaulters to reschedule loans for 10-12 years ignoring its own policy, raising huge criticism in the industry.
From now on, the lenders have the full authority to provide the rescheduling facility to their clients according to the new restructured policy. If any defaulter does not comply with the rule, there will be no option to send the proposal to the central bank for special consideration.
Banks have been asked to issue their own rescheduling policy following the central bank's new master circular in this regard.
The Bangladesh Bank restructured its rescheduling policy just a week after Abdur Rouf Talukder joined as the governor.
On the first day of his joining on 12 July, he promised to take necessary steps very soon to bring down default loans at a reasonable ratio and that action is one of his priorities.
Dr Fahmida Khatun, executive director at Center for Policy Dialogue, said, "As a result of this decision, there will be more pressure on banks' liquidity. I think we will not get rid of the culture of loan defaulting in the future."
Mentioning that if the loan amount is big, there will be more time to repay, she said large and wilful defaulters will get more benefits. Besides, small loan defaulters will quickly pay off their debts too.
Mosleh Uddin Ahmed, managing director and chief executive officer at South Bangla Agriculture and Commerce Bank said, "We need to send proposals for the rescheduling of default loans to the central bank for a final approval. The number of such proposals has now gone up significantly and turned into a heavy load for the Bangladesh Bank. So, I believe that this circular has been issued with a flexibility of modification."
Default loans in the banking sector have started to rise since last year after the withdrawal of the payment pause facility offered during the pandemic.
The banking sector experienced an increase of Tk24,700 crore in default loans from January 2021 to March 2022.
The total default loans stood at Tk1.13 lakh crore at the end of March this year, according to the Bangladesh Bank data.
The abnormal rise in default loans put the central bank under pressure from multilateral donors, such as the International Monetary Fund, as the government is seeking loans from them after a decade to meet foreign currency shortage.
However, the IMF has pursued Bangladesh for bringing down default loans to a tolerable level in different meetings held recently with the government high-ups.
The finance ministry is in talks with the IMF to obtain $4.5 billion at low interests as a support for the country's balance of payments.
Bangladesh is also for the first time looking to get more than $1 billion from the World Bank at zero interest – a fillip to dwindling foreign currency reserves.
In this way, $5.5 billion in total is expected in next three years from the two Washington-based lenders as part of precautionary measures to deal with external payment deficit and foreign currency shortages caused by the ongoing Russia-Ukraine war, according to finance ministry officials in the know about the development.
Earlier on 16 May 2019, the Bangladesh Bank issued a special circular, which allowed the defaulters to pay back their loans at only 2% down payment and a grace period of one year with a repayment of loans in 10 years.
A startling Tk50,186 crore loans were rescheduled in one year under that policy taking the default loan down to 9.19% in December 2019 from a decade-high 12% in September that year.
Although default loans declined substantially thanks to special loan rescheduling policy, IMF at that time in its Financial Sector Stability Review on Bangladesh commented that the actual size of bad loans is more than double the officially recognised figure.
The figure will be much more than the official data if loans remained unclassified taking a stay order from the High Court and the rescheduled amount is counted, according to the IMF.