The Bangladesh Bank has instructed the scheduled banks to launch searches for wilful defaulters through dedicated units, in an effort to keep default loans in check. It also specified the actions against the defaulters.
In a gazette notification, the central bank stipulated 9 April for forming the dedicated units to find out the intentional defaulters. The failure to comply with the instruction will result in banks being fined Tk 5 to 10 million, and the penalty will go up by Tk 100,000 a day if the violation continues.
However, the banking sector insiders said a search among the defaulters will bring no benefits. They rather suggested that the regulator look into the anonymous and fraud loans and bring them under monitoring. It is likely to bring true benefits as the volume of such loans are higher than the default loans.
The central bank notification noted that if loans of a defaulting borrower shifted to the anonymous category and the funds are used for purposes other than the declared ones, it will too be considered as wilful default.
According to Bangladesh Bank, the amount of default loans squeezed to Tk 1456.33 billion at the end of last year and it is 9 per cent of the total disbursed loans. The amount will be approximately Tk 3,500 billion if the written off, rescheduled, and loans under trial are taken into account.
Who are the wilful loan defaulters?
A person or an organisation or company can be a wilful loan defaulter. The Bangladesh Bank cited The Companies Act saying any borrower who fails to repay his or her loans despite his or her ability to do so will be termed a habitual defaulter, as per the draft prepared by the finance ministry for non-bank financial institutions.
Besides, a person who uses the loan money for different reasons other than the declared purpose will also be considered a wilful loan defaulter.
The central bank notification also said separate units led by officials two grades lower than the bank directors have to be formed within 9 April to identify the wilful loan defaulters. This unit will verify whether someone is a wilful loan defaulter or not. Besides, it will identify intentional loan defaulters from among the new defaulters within 30 days.
Any wilful loan defaulter must be served a letter with an ultimatum of 14 days to present his statement in this regard. The bank can take a final decision if there is no statement from the defaulter or the statement is not satisfactory.
Following that, the client must be served a letter within seven days to inform him or her about being declared a wilful loan defaulter. The client can appeal to the central bank if he or she is not happy with being declared a loan defaulter. In that case, the decision taken by the central bank will be considered final.
What actions to be taken?
Those who would be identified as wilful defaulters, should be mentioned in detail in the financial report of the bank. Neither their loan’s interest can be waived nor their loan be rescheduled. No other bank can buy this loan as well. The person or institution will remain marked as a wilful defaulter until the loan is fully repaid. In case of wilful defaulters, Bangladesh Bank will take steps to ban their foreign travels and trade licence.
The central bank will also take steps to prevent these institutions or individuals from opening new companies. The wilful defaulters will not receive any state awards or honours. Bangladesh Bank will send the list of wilful defaulters along with their registration of cars, houses, land, flats to the authorities.
A wilful defaulter won’t easily become a director of a bank even if he becomes a regular customer paying the loan. He has to wait for five years for this. The bank will send two months’ notice to the wilful defaulter to return the money. Later, criminal proceedings will be initiated in case of his failure to return the money.
What does the central bank say?
The central bank has mentioned in the notification that if the wilful defaulters are identified and appropriate measures are taken against them, it will be possible to maintain the credit discipline and increase the efficiency and capacity in the banking sector, as well as reducing the defaulted loans.
It further said, an increase in the efficiency and capacity of the banking sector will have a positive impact on the capital, income, profitability, liquidity and solvency of banking companies, which will further accelerate overall economic activity.
That is why, the central bank considers it necessary to identify the wilful defaulters by following the due process and take appropriate legal actions against them, the notification added.