Bangladesh Bank on Tuesday asked all the scheduled banks to monitor use of loan proceeds to ensure the recovery of the amount they disbursed.
It also warned banks of punitive measures for any sort of reluctance or collaborative approach in loan approval, disbursement and monitoring was detected by the central bank.
The central bank issued the instruction in line with its guidelines on credit risk management.
Besides, sharp rise in classified loans in the country’s banking during the January-March quarter of the fiscal year 2017-2018 was another reason behind the central bank’s fresh instruction about the guidelines.
As per the central bank data, classified loan in the banking sector soared by 19.22 per cent or Tk 14,286 crore in three months.
Classified loans increased to Tk 88,589 crore at the end of March 2018 from Tk 74,303 crore on December 31, 2017.
Tuesday’s circular of the central bank said the banks were instructed to monitor the use of loan proceeds, including use of the fund in the stated purposes.
The guidelines on credit risk management mentioned duties of the banks from selection of customers for loans and their duties after loan disbursement.
Chances of fund use for other than the stated purpose could be mitigated if the guidelines were followed by the banks, the BB circular said.
Proper use of loans would not be ensured if the board of directors, credit committee and officers concerned failed to play their roles duly, it said.
For ensuring effective use of loans, the central bank in its circular again instructed banks to monitor utilisation of proceeds regularly, especially those of project loans.
It also asked banks to release the loan instalments after being confirmed about the proper use of the earlier released amount of loans.
Banks have been asked to take measures along with instant move to know the reason behind the contravention in utilising loan proceeds.
Central bank’s on-sight and off-sight department would take punitive measures under the Bank-Company Act, 1991 if any sort of reluctance or collaborative approach of the banks was detected.
Want stories like this in your inbox?
Sign up to exclusive daily email
More Stories from Banking