Rescheduling with HC order, 21,48 debtors get away with defaulted loans

Mahmud Fabrics and Finishing Limited in Chattogram's Double Mooring area has been named among the top defaulters on the Bangladesh Bank's Credit Information Bureau (CIB) list. It owes Tk388 crore in default loans to six banks.

As part of special benefits announced by the banks on different occasions, it availed loan rescheduling facilities three times. But after 2013, it could no longer enjoy those benefits. The banks did not accept loan rescheduling applications anymore.

In 2014, the company filed a writ petition with the High Court, seeking directives to reschedule loans with a claim that its business was down. The court directed the banks to reschedule the loans for six months. After the advantage period ended, the company again petitioned for extending the facility for another six months.

As of 2018, the company had applied to the High Court six times for an extension to the loan rescheduling order and the court granted it. In November that year, the Appellate Division stayed the sixth order of the High Court following an appeal from the banks.

In between January 2015 and December 2019, a total of 21,480 companies and individuals had rescheduled loans with directives from the High Court, according to an investigation of The Business Standard.

During the period, the court also issued rules on related matters. About 9,600 rules are awaiting final hearing, Supreme Court sources said.

Experts say banks have offered borrowers repeated rescheduling facilities under political influences or following High Court directives.

Prabir Niyogi, a lawyer expert in the company law, told The Business Standard that after rescheduling a loan three times as per the law, borrowers no longer avail such opportunities from banks. So, they file writs with the High Court and reschedule loans again and again.

Masud Mia, a lawyer for Mahmud Fabrics and Finishing Limited, told TBS that the appellate division's order did not allow the company to reschedule its loans anymore and it was included in the CIB list. 

Later, when the Chattogram-based company filed a writ petition with the High Court, challenging its inclusion in the CIB list in 2019, a bench refused to hear it, he said, adding that the company is now trying for the petition's hearing in another bench, but has not succeeded yet.

The Supreme Court has no exact data on the total amount of loans that the applicants owe to banks. In 2019, loans amounting to around Tk16,000 crore availed rescheduling permission from the High court, while in 2018, 3,638 applicants scheduled loans of Tk12,000 crore, according to sources. 

In another example, the Rangpur-based Apple Ceramics (PVT) Limited, which is on the CIB top list with a default loan of Tk206 crore, had rescheduled loans taken out from Pubali Bank, Janata Bank, AB Bank and City Bank 11 times till 2018, securing directives from the High Court in its favour.

Later, the banks appealed against the High Court order, bringing an end to the company's rescheduling facilities.

If a loan is not repaid in installments for three consecutive months, the loan is called a substandard loan in banking parlance. Similarly, if a loan is not repaid for six consecutive months, it is called a doubtful loan, and if a loan is paid for nine consecutive months, it is called a bad/loss loan. Borrowers under these three categories are considered as defaulters. 

A defaulter cannot take out a loan from a bank or financial institution and cannot even participate in any national election.

Banks offer loan rescheduling facilities to benefit clients, but there is no provision to give such an opportunity to any customer again and again. A customer can get the benefit up to three times. To avail the rescheduling facility for the first time, they need to pay 15% of default loans in one-time cash. The next two times, they have to pay more at once.

Shah Mohammad Ahsanur Rahman, a bank and company law expert told TBS that after enjoying such facilities three times as per the law, they move to the High Court with powerful lawyers to avoid getting into the list of defaulters or take more loans from banks. Most of the time, they get court directives in their favour. 

In a ruling in July 2019, the Supreme Court instructed the Bangladesh Bank and other banks to be strict in rescheduling loans. According to the ruling, if a businessman takes a rescheduling advantage, they will not be allowed to take a loan from any other bank within the next two months. But there does not seem to be an implementation of these directives, he added.

Ahsan H Mansur, executive director at the Policy Research Institute, told TBS that there is no reason other than rescheduling facilities that have contributed to a drop in default loans. Securing Supreme Court orders to extend such benefits is playing a big part too.

Besides, banks reschedule loans indiscriminately without any scrutiny to make their balance sheet look clean. As per the law, there is no opportunity to reschedule a loan more than three times, but influential borrowers are even taking rescheduling benefits more than 10 times with High Court orders, he added. 

As a result, the rate of rescheduled and restructured loans in the banking sector has increased more than that of default loans, Ahsan said, adding that the court should properly examine and consider such matters during hearing or before giving an order. 

Salehuddin Ahmed, a former governor of the central bank, said  under political and various other influences, banks repeatedly reschedule loans without conforming to the law. Besides, loan rescheduling is also happening following ]High Court orders. The chief justice should have specific instructions to his subordinate courts on what to decide on writs, cases and appeals  in such matters, he added.

Sirajul Islam, executive director and spokesperson of the Bangladesh Bank, said the Bangladesh Bank issues orders from time to time regarding rescheduling of loans. They also monitor banks so that they comply with such directives properly. But banks have nothing to do if rescheduling orders come  from the High Court.

Muhammad A (Rumee) Ali, chairman of AB Bank and chief executive officer of Bangladesh International Arbitration Centre, said banks abide by orders, judgements and directives from High Court and Appellate Division out of respect for law and court.

He hopes that the law minister and the chief justice will come to a decision after considering such issues.

Attorney General AM Amin Uddin told TBS that the Appellate Division and the High Court are well aware of any case related to banks, including applications for delisting in the CIB list and rescheduling of loans.

Orders are now not given in favour of applicants like before. Steps will be taken for unresolved hearing on writs regarding offering of rescheduling facilities as soon as normal court proceedings resume, he added.