Banks allowed to write off bad loans up to Tk5 lakh without filing cases

Banks have been allowed to write off non-performing loans of up to Tk5 lakh in cottage, micro, small, and medium enterprise (CMSME) and agriculture sectors, and other microcredits instead of filing lawsuits.

In a circular on Thursday, the Bangladesh Bank said from now on, if the cost of litigation is more than the loan amount, there is no need to file a case to write off small loans.

Earlier, there was an opportunity to write off loans of up to Tk2 lakh without filing a case.

Bankers said the directive is more beneficial to banks than their customers because it helps lenders dress up their balance sheets. Even if the debt is not recovered, the cost of litigation will not be incurred, and at the same time, the defaulted debt will be less.

According to the new policy, Shariah-based banks will also be able to take necessary measures by following this policy in their investments.

Under the new guidelines, even if the loan is not recovered, defaulted loans will decrease.

According to the latest data from the central bank, the total outstanding debt of the banking sector at the end of September 2022 stood at over Tk14.36 lakh crore. Out of this, the defaulted loan is more than Tk1.36 lakh crore, which is 9.36% of the total debt.

Besides, the central bank report shows that at the end of June last year, the written off defaulted loans stood at over Tk44,500 crore.

Since 2003, the central bank has introduced a loan write-off scheme for the banking sector. Banks are required to keep a provision of 0.25% to 5% of their regular loans. But the provision ranges from 20% to 100% of defaulted loans. But, in case of write-off, the entire loan amount has to be kept as a provision.

However, many public and private banks are unable to pay provision shortfall and take deferral facilities from the central bank.