BRPD Circular No. 06: Identification and Finalization of Willful Defaulters and Measures to be Taken Against Them

Bangladesh Bank Chief Executive Office Motijheel, Dhaka-1000 Bangladesh. Ref No.: BRPD Circular No. 06 Banking Regulation and Policy Department

Date: ----------------- 28 Falgun 1430

Managing Director / Chief Executive Officer All Scheduled Banks operating in Bangladesh

Dear Sir,

Regarding the identification and finalization of willful defaulters and measures to be taken against them,

Reference is invited to Section 5(kkkk) and Section 27(kh) of the Bank Company Act, 1991 (amended up to 2023).

2. Section 5(kkkk) of the aforementioned Act defines 'Willful Defaulter' as follows:

A Willful Defaulter means any borrower, individual, institution, or company who:

(1) Does not repay any loan, advance, investment, or other financial facility obtained from a bank-company or financial institution, or any part thereof, or interest or profit levied thereon, despite having the capacity to do so, for the benefit of himself, his family members, interested persons, institutions, or companies; or

(2) Obtains any loan, advance, investment, or other financial facility in his name, or in the name of his family members, interested persons, institutions, or companies, from any bank-company or financial institution through forgery, fraud, or providing false information; or

(3) Uses the loan, advance, investment, or other financial facility, or any part thereof, obtained from any bank-company or financial institution for any purpose other than the purpose for which it was obtained; or

(4) Transfers or assigns the security provided against the loan or advance to any bank-company or financial institution providing the loan or advance without prior written permission.

3. Section 27(kh) of the aforementioned Act provides directions regarding the list of willful defaulters, etc. Non-performing loans are one of the major obstacles to the country's economic development and loan management in the banking sector. Identifying willful defaulters and taking appropriate measures against them will help reduce classified loans, maintain loan discipline in the banking sector, and enhance the efficiency and capacity of the banking sector. Enhancing the efficiency and capacity of the banking sector will have a positive impact on the capital, income, profit, liquidity, and smoothness of bank companies, which will further accelerate the overall economic machinery. Therefore, it is necessary to identify willful defaulters by following the prescribed process, take appropriate legal measures against such borrowers, and adopt various preventive measures. In this context, the following directions regarding the identification, finalization, and measures to be taken against willful defaulters must be followed:

4. Identification of Willful Defaulters:

After a person, institution, or company becomes a defaulter, the following process must be followed to identify whether such person, institution, or company is a willful defaulter:

(1) To carry out all activities related to the identification of willful defaulters, a separate unit named 'Willful Defaulter Identification Unit' must be formed under the immediate two tiers below the Managing Director/Chief Executive Officer of the bank at the Chief Executive Office by April 9, 2024;

(2) Scheduled banks must identify whether any of their borrower individuals, institutions, or companies are willful defaulters according to the definition of willful defaulters provided in the Bank Company Act, 1991;

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(3) Within 30 (thirty) days of a borrower being identified as a defaulter, the relevant unit of the bank must conduct a preliminary identification by considering relevant matters to determine whether the said borrower is a willful defaulter. However, if identification is not possible within the specified time due to any reason, the time may be extended by another 30 (thirty) days with the approval of the Managing Director/Chief Executive Officer of the bank.

5. Finalization of Willful Defaulters:

If a person, institution, or company is identified as a willful defaulter, the following process must be followed for finalization:

(1) If a borrower is identified as a willful defaulter, the relevant borrower must be given 14 (fourteen) days to submit a representation regarding the reason for identification;

(2) If the relevant borrower fails to submit a representation within the specified time, or if the representation submitted by the borrower within the specified time is considered unacceptable, the 'Willful Defaulter Identification Unit' must seek approval from the Managing Director/Chief Executive Officer of the bank to take a final decision on this matter. However, for loans of 'Large Industries' sector of 75 (seventy-five) Crore and above, 'Medium Industries' sector of 30 (thirty) Crore and above, and other sectors of 10 (ten) Crore and above as defined in the National Industrial Policy, approval from the bank's Executive Committee/Board of Directors is required. In the case of finalization by foreign banks operating in Bangladesh, approval from the local Supreme Authority/Management Committee must be obtained;

(3) After finalization as a willful defaulter, the relevant borrower must be informed in writing within 7 (seven) days;

(4) After the customer is informed about the finalization as a willful defaulter, if the relevant borrower individual or institution is aggrieved, they may appeal to the Banking Regulation and Policy Department of Bangladesh Bank in accordance with Annexure-'A' within 30 (thirty) days of being informed, provided that the bank's letter mentions this. If the relevant borrower does not file an appeal within the specified time, the bank's previous decision will remain in effect. However, if an aggrieved borrower files an appeal, the decision of Bangladesh Bank will be considered final;

(5) If a supervision team of Bangladesh Bank identifies a borrower as a willful defaulter, the relevant bank must finalize it by following the processes mentioned in clauses 5(1), 5(2), and 5(3) above. However, if the relevant bank does not identify the borrower as a willful defaulter upon inspection, a letter stating the reason for non-identification must be sent to the relevant supervision department of Bangladesh Bank before finalization, and in this case, finalization must be done based on the opinion of the relevant supervision department.

6. Measures to be taken against Willful Defaulters:

(1) To impose bans on international travel of willful defaulters, bans on issuing trade licenses, and bans on company registration with the Bangladesh Securities and Exchange Commission and the Registrar of Joint Stock Companies and Firms (RJSC), the list of willful defaulters must be sent to the relevant organizations, and Bangladesh Bank will request necessary measures under Section 27(kh)(6) of the Bank Company Act, 1991. In this regard, the relevant government organizations will take necessary measures to fulfill the purpose of this Act;

(2) Willful defaulters will not be eligible to receive any national awards or honors;

(3) The list of willful defaulters will be sent to the authorities responsible for the registration of vehicles, land, houses, flats, etc., by Bangladesh Bank. In this regard, the relevant authorities may take appropriate measures under their existing laws/rules;

(4) If a borrower is listed as a willful defaulter by any bank or financial institution, the relevant borrower will not be eligible to become a director of any bank or financial institution for 5 (five) years from the date of exemption from the list, subject to the condition that the loan is repaid, in accordance with the directions of clause 4(13) of BRPD Circular No. 02, dated February 11, 2024;

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(5) If a director of any bank or financial institution is listed as a willful defaulter, their directorship will be declared vacant by Bangladesh Bank subject to compliance with the rules mentioned in Section 27(kh)(8) of the Bank Company Act, 1991;

(6) If a person or institution is finally listed as a willful defaulter and no appeal is made against such listing, or if the appeal is not approved by Bangladesh Bank, the relevant bank will issue a notice to the borrower giving 2 (two) months to return the entire financial assets available with them;

(7) If the willful defaulter fails to repay the financial assets available with them within 2 (two) months of receiving the notice, the relevant bank will file a criminal case against the borrower with the approval of its Executive Committee. Even if such a criminal case is filed, the recovery of the said loan, advance, or dues will not be hindered by the proceedings of the Money Court;

(8) A report on willful defaulters must be presented at the meeting of the bank's Audit Committee every quarter. The Audit Committee, after reviewing the submitted report and relevant matters, will inform their opinion/decision to the next meeting;

(9) The regular or special internal audit reports conducted by the bank must include a separate section on the identification of willful defaulters, and it must be published as a comment in the audited financial report;

(10) Any interest, whether levied or not, against the relevant loan account of a willful defaulter cannot be waived, and the said account cannot be rescheduled;

(11) If a borrower is finally identified as a willful defaulter, the relevant loan account cannot be transferred to any other bank or financial institution;

(12) A borrower will be considered a willful defaulter until the loan taken by the willful defaulter is fully recovered/repaid.

7. Fine for Violation of Directions:

If any bank violates the directions mentioned above, or if Bangladesh Bank considers that any bank has knowingly or intentionally violated the directions, the relevant bank will be fined not less than 50 (fifty) Lakh Taka and not more than 1 (one) Crore Taka under the powers granted in the Bank Company Act, 1991. If the violation continues, an additional fine of not less than 1 (one) Lakh Taka will be imposed for each day after the first day of the violation.

8. Reporting:

(1) After identifying and finalizing willful defaulters, the bank must report this information to the Credit Information Bureau (CIB) of Bangladesh Bank. Willful defaulters must be shown as 'Doubtful' in the CIB;

(2) The bank must submit a report on willful defaulters in the form of a statement (in accordance with Annexure-'B') to the Banking Regulation and Policy Department (Division-1) by the 10th (ten) of the following month, every month. All relevant documents and updated information must be presented to the supervision team of Bangladesh Bank as required.

9. These directions are issued under the powers granted in Sections 27(kh) and 45 of the Bank Company Act, 1991 (amended up to 2023).

10. Based on information/data as of June 30, 2024, the above directions must be implemented from July 1, 2024.

Enclosure: As per list

Yours faithfully,

(Mohammad Shahriar Siddique) Director (BRPD) Phone: 9530252

Annexure-A Reference: Date: Director (BRPD) Banking Regulation and Policy Department (Division-1) Bangladesh Bank Chief Executive Office Dhaka

Dear Sir,

Subject: Appeal for exemption from identification/listing as a willful defaulter by the bank

With reference to the subject mentioned above, it is informed that ------------ (Name of Bank) has sent a letter dated ------------ through letter No. --------------------- to ----------------------- identifying him/her as a willful defaulter (Bank's letter attached). Through the said letter, the following matters have been mentioned as reasons for identification as a willful defaulter:

a) --------------- b) --------------- c) ---------------

2. Against the aforementioned matters, the representation of the undersigned is presented below:

a) --------------- b) --------------- c) ---------------

3. Now, considering the aforementioned matters, an appeal is submitted to you to grant exemption to -------------------------------------- from the list of willful defaulters.

Yours faithfully,

Enclosure: As per list.

Signature: Name: Designation: Phone No:

For communication regarding the application (in case of institution or company) Name of the responsible officer: Designation: Office Phone No: Mobile Phone No: E-mail

Annexure-B Quarterly Statement on Willful Defaulters as of --------- Date

Name of the Bank:

Serial No. Lender Bank Branch Name of Willful Defaulter Individual/Institution/Company Type of Institution (Large Industry, Medium Industry, Others) Nature of Loan (Running, Call, Term, etc.) Amount of Loan Position Reason for Willful Default (Briefly) Date of Letter Sent for Representation to Borrower Date of Reply Submitted by Borrower Authority Taking Final Decision (Managing Director/Executive Committee/Board) Date of Final Informing Borrower as Willful Defaulter Remarks (Measures taken against borrower, etc.)

Total

Name of the responsible officer: Designation: Office Phone No: Mobile Phone No: Email: