Exit policy issued for defaulters' bailout on 10pc down payment

The central bank issued an exit policy for the struggling borrowers who now can avail the facility by paying 10-percent down payment of their outstanding loans.
Unlike the loan-rescheduling facility, the loan status of borrowers will not change until the entire loan is repaid and the borrowers availing the facility will not be entitled to get fresh funds, according to a circular issued Monday by Bangladesh Bank's banking regulation and policy department (BRPD).
Talking to the FE correspondent, BRPD director Mohammad Shahriar Siddiqui said there are some people, institutions and companies that took loan from the banking system and got into problems for reasons beyond control in running their business and getting returns.
"As a matter of fact, these types of loans have become classified, which is not intentional. But banks, in absence of a standard policy guideline regarding the exit, follow various practices to settle such loans," he said.
The central banker said the regulator felt the importance of issuing a complete guideline regarding the exit policy. And also the BB's five-year strategic plan is aligned with the country's eighth five-year plan where issuance of non-time-bound exit policy is clearly mentioned.
"If any individual, institution or company avails the facility by paying 10-percent down payment of the outstanding loans, the bank will start the procedure within 60 days of the application for the facility," he explains the measure.
"Under the facility, the loan status of the borrowers will not change after applying for availing the exit policy. But in the rescheduling, the classified loan can convert to unclassified segment," he adds about the conditional clemency.
According to the circular, the maximum tenure of the loan repayment will be two years, but the board of directors of a bank can extend the timeframe by another year.
The notification provides that the exit policy needs to be approved by the board members before its application. But bank's management can take decision alone regarding such policy for a loan amounting to less than Tk 1.0 million.
Bankers hailed the government move with the hope that it will create an avenue for cleaning up the Augean stables in the banking sector, where non-performing loan (NPL) buildup has reached a crisis proportion.
Managing director and CEO of Mutual Trust Bank (MTB) PLC Syed Mahbubur Rahman says the banking sector has provided such facility sometimes by offering waivers to the borrowers on the basis of bank-client relationship.
"I think the exit policy issued by the BB is a good step," he adds.
Welcoming the circular, managing director and CEO of Dhaka Bank Emranul Huq says the projected cash flow of the borrowers is very important in this matter. "As the borrowers face problems in running their business because of various reasons, it is important for the banks to know the projected cash flow to settle their loans under the exit policy."
Growing buildup of default loans becomes a matter of serious concern for the banking industry as the volume of non-performing loans soared to Tk 1.82 trillion until March 2024, which is 11.11 per cent of the entire loan outstanding.
But money-market analysts say the actual volume of bad loans could cross Tk 4.0 trillion if the amounts of write-off, rescheduling and the loans stuck in disputes pending with courts are taken into account.

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