Artha Rin Adalat needs to amend for empowering banks recovery process
Abu Sazzad: The loan rescheduling opportunity is being failed to recover the expected level of non-performing loan (NPL) amount as many of the customers who had earlier agreed to regularise their loans with due payment, denied to pay money at the last moment.
Many defaulters usually pay a portion of their defaulted loan amounts at the end of a quarter, but at the end of January-March quarter such payment slowed after the government made statements over the proposed rescheduling facility, banking sources said.
During January-March quarter, such payment slowed after the government made statements over the proposed rescheduling facility. Bankers expected that it would be possible to collect around Tk 500 crore from the defaulters by March but the collection was far below from estimation.
However, the amount of defaulted loans in the country’s banking system increased to Tk 93,911.40 crore at the end of the year 2018 but the sources said, now, the NPL amount is over 1 lac crore.
On the other hand, the loan reschedule amount was Tk 23,210 crore in 2018, followed by Tk 19,120 crore in 2017, Tk 15,420 crore in 2016, Tk 19,140 crore in 2015 and Tk 12,350 crore in 2014, according to Bangladesh Bank data.
The Finance minister AHM Mustafa Kamal after a meeting with the top officials of financial regulators recently said that they were mulling over giving opportunity for restructuring defaulted loans with up to 2 per cent down payment by ‘honest borrowers’.
The minister said the central bank will issue a revised guideline soon on default loan rescheduling to get effective results on recovering default loans.
Talking to Daily Industry, Syed Habib Hasnat, managing director of NRB Global Bank said recently, the government announced that defaulters would be allowed to reschedule their loans for 12 years after furnishing 2 percent down payment under a special package.
At present, defaulters can reschedule their loans for at most 3 years by providing 10 to 15 percent down payment. Both small and large borrowers will be able to get the rescheduling facility and a 7 percent simple interest formula instead of existing compound formula will be applied. “If their payments are regular, borrowers will also be able to get fresh loans from the same bank after rescheduling”, said Hasnat.
Failure of repayment of equal monthly installment (EMI) by the large-scale stakeholders and lack of effective loan recovery measures by the scheduled banks are major reasons behind increasing default industrial loans, he pointed out.
Habib Hasnat, pointed out that a good number of banks have been facing severe crisis for their shortfall of capital and provision for increasing default loan.
“If we fail to ensure good governance, corporate culture, corruption and political interference free in approving larger-scale industrial loan, the endless journey of default loan would not prevail in the banking sector”, he said.
The NPL is foiling the financial health of the banking sector as well as impeding the growth of the private sector and country’s economy”, he said.
The number of willful defaulters has also increased in the recent years, he said adding banks are forcing to make write-off and rescheduling of bad debts to hide the real amount of NPL, he observed.
Talking on the latest move of the government to recover bad loan, Habib Hasnat said political will is a must to recover bad debts.
Bad loan recovery process became a tough job in Bangladesh, he observed. Commenting on the recent move on loan reschedules policy, he said adding such policy had failed to recover NPL amount over the years.
Only the large stakeholders are benefiting to take the advantage of rescheduling loan policy, he observed.
The willful loan defaulters are frequently filling writ which is hampering the recovery measures of banks, he said adding the ArthaRinAdalatAin (Money Loan Court Act) needs to be amended to empower the banks to recover NPL amount.
The implementation of good governance mechanisms could reduce the risk factors and enhances the process of financial development, he pointed out.
Dr Salehuddin Ahmed, former governor of the Bangladesh Bank said that the policy of write-off and rescheduling of loan is affecting ‘credit culture’ in the banking sector.
The rise in loan rescheduling in recent times has created extra pressure on the banking sector, he claimed.
Bankers should change their mindset as many of them have offered loans to clients without verifying their actual business condition, said Salehuddin Ahmed.
“The banking sector has taken a heavy toll because of this attitude,” he said.
Banks have to take prior approval from the central bank when they reschedule any amount of classified loans bypassing rules, Ahmed recommended.