BRPD Circular No. 11: Observance of Alternative Dispute Resolution (ADR) to accelerate recovery of defaulted loans

Bangladesh Bank Chief Office Motijheel, Dhaka-1000 Bangladesh Ref No.: BRPD Circular No.-11 Banking Regulation and Policy Division BRPD Circular No.-11 12 May 2024 Date: --------------------- 29 Baisakh 1431 Managing Director / Chief Executive Officer All Scheduled Banks operating in Bangladesh Dear Sir,

Context regarding the observance of Alternative Dispute Resolution (ADR) to accelerate the recovery of defaulted loans.

1. The Debt Recovery Court Act, 2003 has given greater importance to Alternative Dispute Resolution for the out-of-court settlement of disputes regarding the speedy recovery of bank loans. Under the said Act, in cases filed, after the submission of the written statement by the defendant, the court refers each case to mediation for dispute resolution under Section 22. It is stated in the said section that an order for the settlement of any case through mediation shall be considered final, and no appeal or revision shall lie against the said order in any higher court. According to the said Act, any stage of the case before the issuance of an award or order by the court can be settled through alternative means by mutual consent of both parties with the permission of the court.

2. Through a letter dated 16/04/2016 of the Banking Regulation and Policy Division, scheduled banks were encouraged to use the services of the Institute of Arbitrators, Mediators and Conciliators (IAMC) and other similar institutions for the settlement of any commercial dispute including the recovery of outstanding dues, and to include Alternative Dispute Resolution in the settlement of disputes in various contracts including loan agreements executed by the bank with various parties. Nevertheless, the success rate of dispute resolution through mediation in cases filed under the Debt Recovery Court Act is not up to the mark due to various reasons such as the lack of willingness of defaulting customers to repay loans, the tendency of banks not to offer concessions in mediation, insufficient importance given to mediation in loan recovery, reluctance/procrastination in determining and paying remuneration to mediators, and mediators not playing an appropriate role in removing differences between parties. It is mentioned that there is an opportunity to use the mediation process even before filing a case against the defaulting customer to accelerate the recovery of defaulted loans.

3. In view of the above, instructions are given to take the following steps to avoid delay in the recovery of defaulted loans by following the mediation process:

a) Include mediation proposals on a case-by-case basis in the notices issued for the recovery of defaulted loans, considering the capacity/willingness of the customer to repay the loan;

b) Appoint skilled and experienced mediators or retired judges, retired officials of banks or financial institutions, lawyers, or any other suitable person with a successful track record as mediators, with the mutual consent of both the bank and the customer, through IAMC or similar institutions;

c) Determine the amount of remuneration, the paying party, etc., based on mutual consent between the concerned opposing parties and the mediator in the appointment of the mediator, and ensure timely payment thereof; and

d) Consider the matter of granting concessions by the bank on a case-by-case basis as per existing BRPD circulars/instructions to make mediation successful and in the interest of speedy recovery of defaulted loans.

4. To achieve the target of loan recovery through mediation, banks shall formulate their own policies in line with existing laws and instructions of Bangladesh Bank, keeping in mind the recognition/reward and financial incentives for branches/teams that achieve the target. Banks shall also conduct internal investigations into the reasons for failure in mediation and take corrective measures.

5. A minimum cash recovery target of 1% of the defaulted loan position of each bank shall be set by June 30, 2026, through the observance of Alternative Dispute Resolution (ADR). Monitoring mechanisms shall be strengthened from the highest level to ensure the achievement of the set target. A memorandum on progress in this regard shall be presented at the Board of Directors' meeting held every six months. The Board of Directors will provide necessary directions upon being informed about the progress of recovery.

6. Information on the recovery of defaulted loans through pre-litigation mediation, as per Annexure 'A', shall be sent to the Director, Banking Regulation and Policy Division (Division-2), Bangladesh Bank, as an attachment to the BR-4 report of BRPD Circular No.-11/2000.

7. If mediation is fruitful and both parties are interested in the case, it can proceed to the arbitration process. To complete the arbitration process in a short time and through the previously determined method, banks may enter into MoUs with IAMC and other such arbitration institutions.

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

Annexure 'A'

(1) Information on cases settled through Alternative Dispute Resolution: (On a half-yearly basis) In Lakh Taka

Cases pending/sent for settlement through alternative means	Cases settled through alternative means (Cumulative)
Number	Claimed Amount

(2) Information related to the program for recovery of defaulted loans through pre-litigation mediation: (On a half-yearly basis) In Lakh Taka

Loan accounts pending/sent for mediation	Loan accounts settled through mediation (Cumulative)
Number	Claimed Amount