Wilful defaulters now to face music as BB asks banks to send their names

In a decisive move to rein in wilful loan defaulters, the Bangladesh Bank has directed scheduled banks to establish dedicated units within their organisations by 9 April to scrutinise and identify those deliberately defaulting on loans.

The directive, detailed in a circular released on Tuesday, outlines stringent measures to be taken against such defaulters, including travel bans, revocation of trade licences, and suspension of company registrations. The Bangladesh Bank has enforced these measures under the authority vested in it by the Bank Company Act of 1991, amended in 2023.

These units, dubbed "wilful loan defaulters identification units", will be under the stewardship of seasoned officials, no more than two ranks below the managing director or chief executive officer of banks. The circular delineates the methodology for identifying wilful defaulters.

Upon a borrower becoming a defaulter, banks are mandated to conduct a thorough assessment within 30 days to ascertain whether the default was wilful. Should this evaluation require more time, an extension of up to 30 days can be granted by the bank's managing director. Subsequently, identified wilful defaulters are accorded a grace period of 14 working days to present their defence. Failure to respond within this timeframe will result in their inclusion in the wilful defaulter list compiled by the special unit.

According to the directive, banks will be required to submit a list of wilful defaulters to the central bank every three months. The list must include the names of the defaulters, along with the reasons for their wilful default. Additionally, banks must indicate whether the defaulters were served with letters by the bank.

Furthermore, banks will report wilful defaulters to the Credit Information Bureau (CIB) upon finalisation. Subsequently, the CIB will classify them as wilful defaulters.

A bank may face fines ranging from Tk50 lakh to Tk1 crore if it demonstrates negligence in identifying wilful defaulters and fails to report them accurately. Furthermore, an additional penalty of Tk1 crore will be imposed for every day, starting from the first day of the violation.

At the end of December 2023, the amount of defaulted loans by the country's banks stood at Tk1.45 lakh crore, which accounts for 9.09% of the total outstanding loans.

The central bank aims to reduce non-performing loans (NPLs) to 8% by 2026, following IMF guidelines. To achieve this target, the central bank intends to lower the NPLs of public and private banks to below 10% and 5%, respectively.

The Bangladesh Bank has chalked out 17 roadmaps to improve banking governance and reduce NPLs, including the identification of defaulting borrowers and subsequent actions taken against them.

Who are the wilful defaulters?

A defaulting borrower will be classified as a wilful defaulter if they fail to repay a loan taken in favour of themselves, their family members, or persons, institutions, or companies of their interest, despite having the ability to do so.

If a borrower obtains a credit facility from a bank or financial institution in the name of themselves, their family member, or a person, institution, or company of their interest by providing fraud, deception, or false information, then they are considered a wilful defaulting borrower.

If a borrower utilises the loan facility for any purpose other than the intended purpose for which it was obtained from a bank or financial institution, and subsequently defaults, they will be classified as a wilful defaulter.

If the collateral provided against any customer loan is transferred without prior written permission from the bank or financial institution, and if the loan subsequently defaults, the borrower will be deemed a wilful defaulter.

When asked how banks will identify whether a defaulted borrower is capable of repaying loans, a central bank official explained that the bank will scrutinise the balance sheet of the borrower's companies. If their retail earnings remained favourable, yet they still failed to make loan repayments, then they should be classified as wilful defaulters.

"If this directive can be enforced, then it will send a significant message to defaulted borrowers," the official told TBS, requesting anonymity.

How wilful defaulters will be finalised 

If a borrower is classified as a wilful defaulter, they must submit their statement to the bank within 14 working days of its identification.

However, if the statement is not provided within the specified time frame or if the statement is deemed unacceptable, it must be approved by the managing director of the bank.

In the event of wilful default, the borrower must be notified within seven working days. If the borrower is dissatisfied with this notification, they have the right to appeal to the Bangladesh Bank within 30 days. However, if no appeal is made, the previous decision will be upheld.

According to the National Industrial Policy, approval from the Bank's Executive Committee will be necessary to determine whether the borrower is a wilful defaulter in the case of loans amounting to Tk75 crore or more for large industries and Tk10 crore or more for medium industries, respectively.

Punishment of wilful defaulters

The Bangladesh Bank will request authorities to impose a ban on foreign travel, the issuance of trade licences, company listings with the Bangladesh Securities and Exchange Commission, and registration with the Registrar of Joint Stock Companies and Firms for wilful defaulters.

Even if a wilful defaulter is removed from the list after repaying the loan, they are prohibited from serving as a director of any bank or financial institution for the following five years.

Interest levied on the loan of a wilful defaulter cannot be waived, and the loan cannot be rescheduled. The loan of a wilful defaulter cannot be transferred to another bank.

If the wilful defaulter fails to repay the entire debt to the bank or financial institution, they will not be removed from the wilful defaulter list