Relaxed rescheduling policy backfires

RECENT reports by the Bangladesh Bank show that many of the loan defaulters who were allowed to reschedule their loans due to the political unrest which took huge tolls on business, defaulted on loans again. The banking sector got an overall increase of bad debt of Tk 7,589.15 crore in the first three months of this year as well. According to BB officials the reason behind this default is that most of the scheduled banks misused the central bank’s relaxed loan rescheduling policy that resulted in the surge in defaulted loans in the first quarter of 2014.
Last year on December 23, the BB relaxed rescheduling policy for six months for all kinds of loans of businesses. The rescheduling was done to help the businesses who had suffered from the political unrest. Under the relaxed policy, the scheduled banks between December 23, 2013 and March 20, 2014 regularised loans worth Tk 14,765 crore taken by stumbling businesses.
Experts have opined that the central bank’s relaxed rescheduling policy did not have a positive impact on the banking sector as the majority of the banks had misused the policy. Allegations have it that directors of the scheduled banks gained huge profits by rescheduling the defaulted loans as the banks were not required to keep provision against the rescheduled loans. It is documented that the banks rescheduled the defaulted loans on the basis of their relationship with the clients and not on the basis of the loans’ merit. Economists have urged before and continue to urge now that the BB should not have taken the relaxed policy.
We are utterly dismayed by this inefficient and naive policy of the Bangladesh Bank with regard to the loans of private commercial banks. Moreover, allegations of a nexus between the defaulting clients and directors who are also allegedly the beneficiaries of this default ensures that the issue is not limited to mere inefficiency but rather corruption is also evident. If BB lets this continue, the tradition of loan defaults will not only make the banking sector collapse but also it will create a serious disincentive for commercial banks and their clients to repay loans. The chain reaction will have adverse effects on the overall private sector investment in the long run. We urge BB to tackle the issue with zero tolerance and recuperate all the loans as soon as possible.