BRPD Circular No. 13: Exit Policy for Recovery/Settlement of Loans

Bangladesh Bank Chief Executive Motijheel, Dhaka-1000 Bangladesh. Ref No.: BRPD Banking Regulation and Policy Department 08 July 2024

BRPD Circular No.-13 Date: ------------------- 24 Asharh 1431

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

Dear Sir,

Exit Policy regarding Recovery/Settlement of Non-Performing Loans

The business, industry, or project of a borrower sometimes gets closed due to various extraneous reasons or operates at a loss. In such situations, the bank's loan recovery program gets obstructed due to the cessation of the customer's internal cash flow or insufficient cash flow for installment payments. Consequently, such loans get classified as non-performing, which does not fall under willful default. There is a need for exit-based recovery/settlement for loans where the possibility of recovery is low due to the borrower's actual financial distress caused by extraneous reasons. Since there is no specific policy regarding exit-based loan recovery/settlement, banks are following different methods or standards in this regard. Therefore, the need for formulating a uniform policy has been observed. To maintain the bank's liquidity flow through loan recovery and to reduce classified loans in the banking sector, a follow-up policy is being issued.

2. General Guidelines:

a) This policy will be considered as the minimum standard for providing exit facilities. Banks shall formulate their own exit-related policies in conformity with this policy, which shall be approved by the bank's Board of Directors. No condition more stringent than the percentage mentioned in this circular shall be included in the policy formulated by the bank.

b) Exit facilities for regular loans shall be provided for the purpose of recovering non-performing loans with low recovery prospects in the future, or where projects/businesses have closed due to extraneous reasons, or where the borrower has closed the project/business.

c) A minimum 10% down payment in cash must be paid to apply for exit facilities under the existing loan status. The bank shall take steps to decide on the borrower's application within 60 (sixty) days of receiving the application.

d) Exit facilities must be approved by the bank's Board of Directors/Executive Committee. However, the authority to make decisions regarding the provision of exit facilities for principal loans up to 10 (ten) lakh Taka may be delegated to the bank's management.

e) In the case of interest waiver under this facility, the instructions of BRPD Circular No.-06 dated: 21 April 2022, BRPD Circular Letter No.-18 dated: 24 May 2022, and subsequent circulars/letters issued thereafter shall be followed. In this regard, waivable interest shall be transferred to a separate Bad Debt Account, and the interest retained in the Bad Debt Account after full loan repayment/settlement shall be considered as final waiver.

f) Loans may be repaid in one/multiple installments under the exit facility. In the case of repayment in multiple installments, a repayment schedule shall be formulated based on the bank-customer relationship. The loan repayment period shall generally not exceed 2 (two) years. However, the Board of Directors may extend the time by a maximum of 1 (one) year considering reasonable reasons.

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3. Special Guidelines:

a) The classification of the previous loan shall remain in effect until the borrower/institution/company receiving the exit facility fully repays the loan liability. Defaulting borrowers shall be identified as defaulting borrowers in due course, and information regarding the said loan account shall be reported to the Bangladesh Bank's Credit Information Bureau ('CIB') according to the applicability based on the previous classification. However, if exit facilities are provided for regular loans, reporting shall be done as 'CIB'.

b) This facility shall not be considered as re-scheduling/restructuring under BRPD Circular No.-16/2022.

c) No new loan facility shall be provided to the person/institution/company receiving the exit facility until the said loan is fully repaid/settled.

d) In the case of recovery of written-off loans under the exit facility, the instructions of BRPD Circular No.-04/2024 shall be followed.

e) Adequate provision shall be maintained against the loan, and the collateral taken against the loan before settlement shall not be released. However, if the bank, customer, and buyer are interested, the loan can be settled through the sale of mortgaged property via a tripartite agreement.

f) If the customer defaults on payment after receiving the exit facility, the bank shall take necessary legal measures for loan recovery.

4. Islamic Shariah-based banks may take measures for the recovery/settlement of their regular and non-performing investments by following the above policy.

5. These instructions are issued under the powers granted under Section 45 of the Companies Act, 1991.

6. These instructions shall come into force immediately.

Yours faithfully,

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