BB warns NBFIs against malpractice in loan sanctioning, rescheduling

The central bank warned Tuesday the top executives of non-banking financial institutions (NBFIs) against irregularities in respect of sanctioning and rescheduling of loans for ensuring good governance in the sector.
The Bangladesh Bank (BB) also cautioned the NBFIs not to sanction loans in favour of their directors, defying the existing rules and regulations.
BB Governor Atiur Rahman issued the warnings in a meeting with the chief executive officers and managing directors of the NBFIs held in the central bank headquarters in Dhaka.
"The governor has issued warning to the NBFIs that the central bank would show zero tolerance to any irregularities," Deputy Governor of the BB SK Sur Chowdhury told reporters after the meeting.
Without mentioning the names, Mr. Sur also said the BB has already fined 'heavily' three NBFIs for their irregularities in the last two months.
The BB's moves came after 10 NBFIs entered 'red-zone,' according to its latest stress testing report.
"The 10 NBFIs will have to improve their financial health immediately for getting out of the red-zone area," the deputy governor noted.
Besides, two NBFIs are still facing capital shortfall in line with the Basel-II framework, according to the deputy governor. "We've given time to meet their capital shortfall immediately."
Different issues including cost of fund, CAMELS rating, risk management and documentation fee were discussed at the meeting.
At present, documentation and service charge are fixed at 0.50 per cent of the sanctioned amount or Tk 200,000 whichever is lower.
Besides, the NBFIs may allow receiving documentation and legal fees beyond the service charge of 0.50 per cent of the sanctioned amount from their clients.
Asad Khan, chairman of the Bangladesh Leasing and Finance Companies Association (BLFCA), welcomed the BB's latest move, saying that the NBFIs will have to improve their financial health through establishing good governance in the sector.
"No institution can develop without ensuring good governance," the BLFCA chief told the FE.
Currently, 31 NBFIs are running their business across the country.