BRPD Circular Letter No. 17: Charging Interest and Repayment Procedure of Term Loan

Bangladesh Bank Head Office Motijheel, Dhaka-1000 Bangladesh. Website: www.bb.org.bd Banking Regulation and Policy Department 08 April 2024 BRPD Circular Letter No. 17 Date: ----------------- 25 Chaitra 1430 Managing Director/Chief Executive Officer All Scheduled Banks operating in Bangladesh Dear Sir,

Regarding interest imposition and collection of term loans

Your attention is drawn to BRPD Circular No. 09 issued on June 19, 2023, concerning the subject matter.

2. Through the aforementioned circular, you were instructed to determine loan interest rates by adding a fixed margin to SMART (Six-months Moving Average Rate Of Treasury Bills) from July 01, 2023, with the aim of making loan interest rates market-based.

3. In the context of the existing adverse global economic situation, it has been observed that the interest rates currently determined based on SMART are higher than the interest rates determined before July 01, 2023, which has reduced the capacity of industrial enterprises and individual home loan borrowers to pay increased installments. In this situation, it is necessary to consider re-arranging the tenure without increasing the installment amounts for existing term industrial loans and home construction loans, in order to maintain the momentum of industrialization and exports and to preserve the repayment capacity of limited-income loan borrowers.

4. Therefore, the following instructions shall be followed for the imposition and collection of interest on term industrial loans and house finance loans sanctioned before July 01, 2023:

(a) Loan installments must be collected with the installment amount remaining unchanged according to the interest rate determined by the bank immediately before July 01, 2023. In this case, the loan outstanding as of March 31, 2024, must be taken into consideration;

(b) If the installment amount calculated by applying the interest rate determined according to the instructions of BRPD Circular No. 09/2023 and related circulars/circular letters is in excess of the installment amount determined before July 01, 2023, then the excess amount must be transferred to a separate interest-free blocked account;

(c) After full collection of installments as per paragraph (a) above, the amount held in the interest-free blocked account must be collected in installments equivalent to the installment amount determined before July 01, 2023, and the necessary tenure extension must be provided for such collection. The extended tenure provided as a result of such collection shall not be considered loan restructuring under BRPD Circular No. 16/2022;

(d) In the case of home loans taken by salaried employees against their salaries, banks may determine the installments and tenure for the repayment of the amount held in the blocked account based on the customer's retirement timeline, at their own discretion;

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(e) After the collection of the amount held in the blocked account begins, the collected amount can be transferred to the income account in due course;

(f) In case of non-payment, classification must be done in due course, and penal interest may be imposed on overdue loans according to existing instructions;

(g) If any loan is classified or rescheduled/restructured after this facility is granted, the facility shall be deemed cancelled for that loan, and the entire amount held in the blocked account must be re-transferred to the loan account;

(h) Only loan accounts that are unclassified as of April 01, 2024, shall be eligible for the mentioned facility. However, this facility shall not be applicable to any loan account that remains unclassified due to a stay order from a court;

(i) This facility shall not be applicable to any converted term loan;

(j) This facility shall not be granted to defaulting borrowers or individuals, institutions, or companies belonging to their group;

(k) These instructions shall not apply to loans provided under any incentive package/special fund formulated/constituted by Bangladesh Bank or the government; and

(l) If a loan borrower does not agree to avail the mentioned facility, the loan can be collected with existing installments in due course, subject to obtaining a letter of disagreement.

5. Islamic Shariah-based banks shall take necessary measures by following the mentioned instructions for their investments.

6. These instructions are issued under the powers conferred by Section 45 of the Bank Company Act, 1991.

7. These instructions shall be effective immediately.

Yours faithfully, (Md. Harun-Or-Rashid) Director (BRPD) Phone: 9530095