BRPD Circular No. 06: Policy on Interest Waiver

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

Dear Sir,

Policy on Interest Waiver.

Reference is invited to the BCID Circular Letter No. 24 issued by the then Banking Regulation Department of Bangladesh Bank on 18 August 1991 on the subject. In paragraph 3 of the aforementioned Circular Letter, it is stated that banks may waive interest on loans. In various reasons beyond regulatory control, such as the death of the borrower, natural disasters, pandemic, flood, river erosion, distress, or stagnated projects, banks have the opportunity to provide the facility of waiving the full or part of the interest on loans. Recently, it has been observed that banks are frequently waiving interest facilities in favor of various customers without considering the specified exceptional 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 the repayment of bank dues during the stipulated period, to maintain overall credit discipline, and to protect customer interests, the following instructions regarding the waiver of all kinds of interest (including investment in the case of Islamic Shariah-based banks) imposed on loans (including both charged and uncharged interest) in the banking sector shall be followed:

(a) The principal amount (original loan) shall not be waived. (b) Interest on loans created through fraud and loans of willful defaulters shall not be waived. (c) Interest shall not be waived to show the bank's income account in a better light. (d) The facility of waiving interest on loans must be approved by the Bank's Board of Directors. However, the authority to take decisions regarding the waiver of interest on loans up to 10 (ten) lakh Taka of principal amount may be delegated to the Bank's management. (e) In the case of waiving interest, the bank must ensure recovery of fund cost. However, the 100% fund cost recovery rule may be relaxed in the following cases: (1) In the case of projects that have been stagnant for 3 (three) years; (2) If fund cost recovery is not possible even after selling the loan collateral, co-collateral, 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 is unable to repay the loan due to justified reasons such as the death of the borrower or natural disasters, pandemic, flood, river erosion, or distress. [By "fund cost" is meant the fund cost as of 31 December of the period/year for which interest is to be waived.]

Page 02/02 Banking Regulation and Policy Department Bangladesh Bank Head Office Dhaka.

Sincerely, M. M. N. M. N. M. N. M. N.

-02- (f) To ensure the justification for relaxing the 100% fund cost recovery rule for one or more reasons mentioned in paragraph '02(e)', the Bank's Internal Audit Department must conduct an audit and obtain the opinion of the Head of Internal Control and Compliance (HICC). (g) For loans where the preparation of Financial Statements (FS) is required, the bank must compulsorily review the borrower's last 3 (three) years' Financial Statements in the case of waiving interest. If the Net Profit after Tax or the Net Profit as per the audited Financial Statements for the considered period is 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 must apply the principle of prudence by considering their own capital adequacy, liquidity, and other important financial indicators. (i) In the case of waiving interest on loans of any bank/financial institution's director, and members of their family, or institutions with interest connected to the director, in addition to ensuring compliance with Section 28 of the Companies Act, 1991, the prior approval of Bangladesh Bank must be obtained.

3. In the case of waiving interest 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 applicable.

4. If Bangladesh Bank issues any instruction regarding interest waiver for a specific sector/time for special purposes, the aforementioned instruction shall be applicable in that case.

5. To be consistent 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) Deputy Governor Phone: 9530252