THE High Court Division’s order of Tuesday for the Bangladesh Bank for the maintenance of a status quo until June 24 on a circular that the central bank on May 16 issued making a set of concessions — including the rescheduling of bad loans by making a 2 per cent down payment and the repayment of the loan in 10 years with a one-year grace period — to loan defaulters is welcome. The court in the hearing expressed its dissatisfaction about the central bank’s decision saying that it appears that the bank is desperate about favouring loan defaulters and that the government has hardly taken any effective action against the people who laundered money out of the country after taking bank loans. The court further said that the provision for the 2 per cent down payment for the rescheduling of loans could encourage money launderers, if they are again allowed to take more loans, to siphon off millions of takas. Banks have even been allowed to waive the interest accrued to the principal amount along with the interest kept in an interest suspense account until December 31, 2018. The central bank circular also empowers banks to reschedule bad loans based on their relationship with clients on a case-by-case basis.
Experts in the banking sector also believe that the concessions that the central bank has afforded the loan defaulters would hardly make the purpose of cutting down on loans in default. The government made similar concessions to loan defaulters in 2015 but the situation has not improved. Experts also believe that such concessions would disappoint good borrowers while they would reward defaulters, especially wilful defaulters, and encourage them to further default on loan repayment. Many in the sector, therefore, view the central bank’s move to be politically motivated to make look better the defaulted loan portfolio while the situation would, in effect, remain bad, which could turn worse and entail further risks when banks would continue to provide bad borrowers with further loans. Experts also think that, with the central bank move being put in place, defaulters would get an extended period for loan repayment at 9 per cent interest rate against 12–13 per cent and regular customers would get a shorter period for loan repayment. The central bank should rather have taken legal measures against the defaulters for the recovery of bad loans instead of extending facilities.
The Awami League in its third consecutive tenure in the government made a number of concessions to loan defaulters such relaxing the rules for loan default classification and extending time for considering loans to have been doubtful and bad. The central bank also earlier relaxed the policy empowering banks to write off loans of Tk 2 lakh, which was previously Tk 50,000. In a situation like this, while it is expected that the court would stop the government from extending such concessions to loan defaulters that could encourage wilful defaulters and punish regular borrowers, it is also expected that the court would issue a guideline on the recovery of loans in default, directives for the government to adhere to that and other guidelines, if required, on the restructuring of bad loans.
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