BRPD Circular No. 06: Policy on Interest Waiver

21 April 2022
BRPD Circular No. 06 Date: ----------------
08 Baisakh 1429
Managing Director/Chief Executive
All Scheduled Banks Operating in Bangladesh
Dear Sir,

Policy on Interest Waiver.

Reference is invited to the BCD Circular Letter No. 24 issued by the then Banking Regulation Department of Bangladesh Bank on 18 August 1991 on the subject cited above. In paragraph 3 of the said Circular Letter, it is stated that banks may waive interest on loans. Due to various reasons beyond regulatory control, such as death of the borrower, natural disasters, pandemic, flood, river erosion, distress, or stuck projects, banks have the opportunity to provide the facility of waiving the full or part of the loan interest. Recently, it has been observed that banks are frequently providing interest waiver facilities in favor of various customers without considering the specified special circumstances. This may create reluctance among customers to repay bank dues during the stipulated period, which is contrary to the healthy credit discipline of the banking sector.

2. In view of the above, to create awareness among customers regarding repayment of bank dues, to maintain overall credit discipline, and to protect customer interests, the following instructions regarding the waiver of all types of interest (including invested and uninvested interest, and in the case of Shariah-based banks, profit) charged on loans (investments in the case of Shariah-based banks) shall be followed:

(a) The principal loan (original amount) shall not be waived.
(b) Interest on loans created through fraud and on loans of willful defaulters shall not be waived.
(c) Interest shall not be waived to artificially inflate the bank's income.
(d) The facility of waiving loan interest must be approved by the Board of Directors of the bank. However, the authority to take decisions regarding the waiver of interest on principal loans up to 10 (ten) lakh Taka may be delegated to the management of the bank. (e) In the case of interest waiver, the bank must ensure recovery of fund costs. However, the 100% fund cost recovery requirement may be relaxed in the following cases:
(1) In the case of projects that have been stuck for 3 (three) years; (2) If fund cost recovery is not possible even after selling the loan collateral, counter-guarantee, project assets, and the personal assets of project entrepreneurs; (3) If dues are not recovered even after taking legal measures and other necessary measures for recovery of dues; (4) If the borrower, affected by death of the borrower, natural disaster, pandemic, flood, river erosion, or distress, is unable to repay the loan for reasonable reasons. [By "fund cost" is meant the fund cost as of 31 December of the period/year for which interest is to be waived.]

Banking Regulation and Policy Department
Bangladesh Bank
Head Office
Dhaka.

Ref No: B.R.P.D.06

-02-
(f) To ensure the justification for relaxing the 100% fund cost recovery requirement due to one or more reasons mentioned in paragraph '02(e)', the bank must conduct an audit through its Internal Audit Department and obtain the opinion of the Head of Internal Control and Compliance (HICC). (g) In the case of loans for which Financial Statements (FS) are required to be prepared, the bank must mandatorily analyze the borrower's financial statements of the past 3 (three) years in the case of interest waiver. If the aggregate tax-paid net profit or the audited net profit according to the Financial Statements for the considered period is observed to be negative, interest shall not be waived. (h) If interest is waived, the bank must analyze the impact on its own financial position. For this purpose, banks shall apply the concept of "Capital Adequacy" by considering their own capital adequacy, liquidity, and other important financial indicators. (i) In the case of waiver of interest on loans of directors of any bank/financial institution and their family members, or institutions with interest of directors, along with ensuring compliance with Section 28 of the Companies Act, 1991, prior approval of Bangladesh Bank must be obtained.

3. In the case of interest waiver by State-owned commercial banks and specialized banks, the instructions mentioned in this circular along with instructions issued by the government from time to time shall be followed.

4. If any instruction is issued by Bangladesh Bank regarding interest waiver for a specific sector/time for special purposes, the said instruction shall be followed in that case.

5. To maintain consistency with this policy, each bank shall formulate its own policy on interest waiver in accordance with the approval process of the Bank's Board of Directors.

6. These instructions are issued under the powers conferred by Section 49(1)(c) of the Companies Act, 1991.

These instructions shall come into force immediately.

Yours faithfully,

(Maksuda Begum)
General Manager
Phone: 9530252