NBFIs can offer up to 50% interest waiver for one-time exit facility to defaulters

Highlights:

• Exit facility comes with maximim 50% interest waiver

• Defaulters can avail facility by making 2% down payment

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• Permission of NBFI board required

• Facility not applicable for loans taken through fraud

• Customers have to apply by 30 April

• NBFIs have to make a decision within 60 days

For the first time, the central bank has given non-banking financial institutions (NBFI) an exit facility by allowing a maximum of 50% interest waiver to loan defaulters who will make full repayment or no longer want to conduct business with the institution concerned.

Bangladesh Bank's Department of Financial Institutions and Markets issued a circular on Tuesday, allowing NBFI clients to avail the facility by making a down payment of 2% of defaulted loans till December 31.

Earlier, two guidelines were issued for the banking sector regarding rescheduling and restructuring of defaulted loans in view of the adverse impacts of the pandemic on businesses, but no such policy was made for non-banking financial institutions.

Under the new policy, non-bank institutions can adjust defaulted loans through the one-time exit, but there will be no scope of rescheduling.

The benefit will also not be applicable for loans gained through fraud or other illicit means.

To avail the benefit, customers have to apply by 30 April this year and repay the entire loan in three-month instalments within one year of getting the facility.

If a customer applies for this benefit, the NBFI has to make a decision within 60 days.

Tuesday's circular said, "Financial institutions are not recovering their debts on time as customers have suffered due to Covid-19," adding that this resulted in many customers defaulting.

"Therefore, this policy has been formulated to bring dynamism in debt collection and protect the interests of the depositors," the circular said.

The new policy states that NBFIs can waive a maximum of 50% interest on loans based on institution-customer relationship with the permission of the board.

However, the amount of interest will be waived if the full amount is recovered under the exit facility.

From the time of taking the exit facility till the full repayment of the loan, interest can be charged on the repayable loan. At the same time, it will be considered as a defaulted loan till full payment is made.

The circular said that ongoing cases can be stayed during the period of taking advantage of the new policy, but if any customer violates the terms and conditions, then the facility will be cancelled.

In addition, the required information of the beneficiary customer (customer's name, address, loan amount, money transferred as bill code through waiver) should be presented to the board and these have to be stored in the branches and head offices of the institutions concerned.

Earlier on 16 May 2019, the Bangladesh Bank issued a policy on loan rescheduling and one-time exit to reduce defaulted loans in the banking sector.

According to the policy, with a 2% down payment, customers were allowed to repay the loan at 9% simple interest within 10 years, with a 12-month grace period.

While many availed the facility, the pandemic meant they could not repay the loan.

Before that in 2015, the central bank had issued a policy allowing individuals, institutions or groups with more than Tk500 crore in debt to restructure their loans for 15 years if there were logical grounds for doing so.

Due to the prolongation of the second wave of Covid-19, the time was extended in several phases considering the negative impact of business and economic losses on the borrowers.