NBFIs barred from waiving principal amount of loans

The central bank has issued a fresh guideline imposing restriction on waiving the principal amount of loans by the non-banking financial institutions (NBFIs), officials said.
Under the guidelines, the NBFIs are not allowed to waive the principal amount of loans at any circumstances.
Bangladesh Bank (BB) issued a circular in this connection Wednesday and asked the chief executive officers (CEOs) and managing directors (MDs) of the NBFIs to follow the latest guidelines on write-off and waiver of loan facilities properly.
"We've issued the guidelines on write-off and waiver of loan facilities to ensure good governance among the NBFIs," a BB senior official told the FE.
The central bank issued the guidelines considering two separate loan write-off polices for the NBFIs, issued by the BB earlier like commercial banks, the BB official explained.
"We've imposed such restriction on waiving the principal amount of loans by the NBFIs as a precautionary measure to avoid risk," the BB official noted.
Under the guidelines, the loan classified as bad and loss will be written off only after ensuring 100 per cent provision.
The NBFIs will have to file cases before writing off any loans except those amounting to Tk 50,000 or below.
No loan can be written off without approval of the board of directors of the NBFIs, the guidelines said.
Measures should be ensured to recover the write-off loans, according the guidelines.
The NBFIs may engage a third party to facilitate recovery of the loans as well as quick settlement of the cases.
The NBFIs will have to report to the Credit Information Bureau (CIB) of the BB relating to the default borrowers even after the loan write-off.
In cases of writing off loans related to the directors of the NBFIs, prior approval from the central bank will be required, it added.
Asad Khan, chairman of the Bangladesh Leasing and Finance Companies Association (BLFCA), welcomed the BB's latest move, saying that it will help ensure good governance and remove ambiguity.   
He also said it has been observed by the NBFIs that filing court cases and conducting the hearing of the cases subsequently entail a huge amount of expenditure. "For filing cases just more than Tk 50,000 is not justified from the cost benefit point of view."
Currently, 31 NBFIs are running their business across the country.
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