The Bangladesh Bank (BB) has withdrawn part of its controversial circular related to rescheduling of defaulted loans.
The BB in an amended circular yesterday withdrew the provision that allowed the banks to waive the principal amount of a defaulted loan if no further facility is extended to the defaulter. Bankers appreciated the move but also demanded that the central bank should withdraw other clauses of the circular to save nationalised commercial banks from being used for election financing.
The Bangladesh Bank in a circular on February 14 said, "If there is any principal waiver, no fresh facility will be allowed till the full settlement of compromise amount."
The BB in its yesterday's circular declared the clause as void.
Following the BB's 14th February circular a number of public and private bank officials told The Daily Star that the provision would put the banks under pressure for waiving both the interests and the principal amounts of rescheduled loans, upsetting the credit discipline.
Yesterday, Khandkar Ibrahim Khaled, former deputy governor of the BB also managing director of Pubali Bank, said the BB has done the right thing by withdrawing the provision of waving the principal amount.
The central bank also should abolish the scope of being eligible for a fresh loan after one repays 15 percent of the defaulted loan, Khaled said.
Elections are around the corner and it is very likely that some influential people will pay off 15 percent of their defaulted loans and then take fresh loans to bear election expenses, Khaled feared.
Especially, the nationalised banks are more likely to fall victim to this provision. If the BB has to keep this provision, it can fix the repayment amount at 80 percent, he observed.
Khaled also suggested that the BB should adopt a policy under which if one reschedules his loan he will become ineligible to take any fresh loan from any bank within a year since the rescheduling.
The February 14 BB circular lifted a bar imposed on January 13, 2003 on loan defaulters from getting fresh loans within a year of loan rescheduling or until full repayment.
Instead, the amended policy has made scopes for them to get fresh loans by repaying 7.5 to 15 percent of the rescheduled amounts.
Meanwhile, the Association of Banks, Bangladesh had a meeting yesterday where the chief executive officers of commercial banks discussed the latest amendment to the BB circular. They have come to a decision to ask the BB for a clarification on whether the banks will be allowed at all to waive the principal amount of a defaulted loan.
