DFIM Circular No. 04: Identification and Finalization of Willful Defaulters and Measures to be Taken Against Them

1
Bangladesh Bank
(Central Bank of Bangladesh)
Head Office
Motijheel, Dhaka-1000
Bangladesh.
Ref No: DFIM Circular No. 04
Managing Directors / Chief Executive Officers
All Financial Companies operating in Bangladesh.
Dear Sir,
Regarding the identification and finalization of willful defaulters and measures to be taken against them.
Reference is drawn to your attention to Section 2(5) and Section 30 of the Financial Companies Act, 2023.
2. Section 2(5) of the aforementioned Act defines 'Willful Defaulter' as follows:
"Willful Defaulter means a defaulter borrower who:
(a) does not repay the loan, investment, or any other financial facility or its part or the interest or profit levied thereon taken from a financial company for the benefit of himself, his family members, interested persons, institutions, or companies, despite having the capacity to do so; or (b) does not return the loan, investment, or any other financial facility taken in his name, his family members', interested persons', institutions', or companies' names from a financial company through fraud, deception, or providing false information; or (c) uses the said loan, investment, or financial facility, or its part, for any purpose other than the purpose for which it was taken from a financial company; or (d) has transferred or assigned the security provided against the loan to any financial company that provided the loan without the prior written consent of that financial company."
3. Section 30 of the Financial Companies Act, 2023 provides instructions regarding the preparation of the list of willful defaulters, submission to Bangladesh Bank, etc. Non-performing loans are one of the main obstacles to the country's economic growth and loan management. Identifying willful defaulters and taking appropriate measures against them will help reduce classified loans, maintain the health of the loan portfolio, and increase the efficiency and capacity of the financial sector. Consequently, it will have a positive impact on capital, income, profit, liquidity, and transparency, which will further accelerate the overall economic engine. Therefore, it is necessary to identify willful defaulters by following the prescribed process and take appropriate legal measures and various preventive measures against such borrowers. In this context, the following instructions regarding the identification, finalization, and measures to be taken against willful defaulters are to be followed:
4. Identification of Willful Defaulters:
In identifying whether a person, institution, or company is a willful defaulter after becoming a defaulter, the following process must be followed:
(1) To carry out all activities related to the identification of willful defaulters, the financial company must form a separate unit named 'Willful Defaulter Identification Unit' under the immediate two levels below the Managing Director/Chief Executive Officer of the financial company at the Head Office by April 30, 2024; (2) The financial company must identify whether any of its defaulter borrowers, persons, institutions, or companies are willful defaulters according to the definition of willful defaulters provided in the Financial Companies Act, 2023; (3) The relevant unit of the financial company must conduct a preliminary identification by considering the matters to be considered to determine whether the said borrower is a willful defaulter within 30 (thirty) days of being identified as a defaulter. However, if identification is not possible within the specified time due to valid reasons, this time may be extended by another 30 (thirty) days with the approval of the Managing Director/Chief Executive Officer of the financial company.
5. Finalization of Willful Defaulters:
In finalizing whether a person, institution, or company is a willful defaulter, the following process must be followed:
(1) If a defaulter borrower is identified as a willful defaulter, a period of 14 (fourteen) days must be given to the said borrower to submit his representation mentioning the reason for identification; (2) If the relevant borrower fails to submit the representation within the prescribed time, or if the representation submitted by the borrower within the prescribed time is considered unacceptable or acceptable, the 'Willful Defaulter Identification Unit' must obtain the approval of the Managing Director/Chief Executive Officer of the financial company to take a final decision on this matter. However, in the case of loans of 'Large Industries' with a status of 75 (seventy-five) crore and above, 'Medium Industries' with 30 (thirty) crore and above, and other sectors with 10 (ten) crore and above as defined in the National Industrial Policy, the approval of the financial company's Executive Committee/Board of Directors is required; (3) After finalizing as a willful defaulter, the relevant borrower must be informed in writing within 7 (seven) days; (4) After the borrower is informed about the finalization as a willful defaulter, if the borrower objects, the relevant borrower person or institution may appeal to the Financial Institutions and Markets Department of Bangladesh Bank in accordance with Annexure-'A' within 30 (thirty) days of being informed, provided that this must be mentioned in the letter of the financial company. If the relevant borrower does not appeal within the prescribed time, the previous decision of the financial company on this matter will remain valid. However, if the objecting borrower appeals, the decision of Bangladesh Bank will be considered final in that case; (5) If a defaulter borrower is identified as a willful defaulter by the inspection team of Bangladesh Bank, the relevant financial company must finalize it by following the process mentioned in sub-paragraphs 5(1), 5(2), and 5(3) above. However, if the relevant financial company does not identify it as a willful defaulter upon examination, it must send a letter to the relevant inspection department of Bangladesh Bank mentioning the reason for not identifying it as a willful defaulter before finalization, and it must be finalized based on the opinion of the relevant inspection department.
6. Measures to be taken against Willful Defaulters:
(1) Under Section 30(9) of the Financial Companies Act, 2023, Bangladesh Bank may send the list of willful defaulters to various relevant institutions and request necessary measures to impose bans on their foreign travel, issuance of trade licenses, and company registration with the Bangladesh Securities and Exchange Commission, Registrar of Joint Stock Companies and Firms (RJSC). The relevant government institutions will take necessary measures to fulfill the purpose of the law; (2) Willful defaulters will not be eligible to receive any national award or honor; (3) The list of willful defaulters will be sent by Bangladesh Bank to the authorities responsible for the registration of vehicles, land, houses, flats, etc. 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 financial company or bank company, the said borrower will not be eligible to become a director of any financial company or bank company for 5 (five) years after obtaining exemption from the said list before repaying the loan, in accordance with the instructions of sub-paragraph 4(g) of DFIM Circular No. 01, dated February 29, 2024; (5) If a director of a financial company or bank company is listed as a willful defaulter, his directorship will be declared vacant in accordance with the rules mentioned in Section 30(10) of the Financial Companies Act, 2023 by Bangladesh Bank; (6) If a person or institution is finally listed as a willful defaulter and no appeal is made against the said listing, or if the appeal is rejected by Bangladesh Bank, the relevant financial company will issue a notice giving the said borrower 2 (two) months to return the entire financial assets obtained from him; (7) If the willful defaulter fails to repay the financial assets obtained from him within 2 (two) months of receiving the notice, the relevant financial company will file a criminal case against the said borrower with the approval of the Board of Directors. Even if such a criminal case is filed, the financial assets in the case of recovery of the said loan or advance or dues will not be hindered by the proceedings of the loan court; (8) A report on willful defaulters must be presented at the meeting of the Audit Committee of the financial company quarterly. After examining the said submitted report and relevant matters, the Audit Committee will inform their opinion/decision to the next Board meeting; (9) A separate paragraph including the examination of willful defaulters must be included in the regular or special internal audit reports conducted by the financial company, and it must be published as a remark in the audited financial report; (10) Any interest imposed or not imposed against the relevant loan account of the willful defaulter will not be waived, and the said account will not be rescheduled; (11) If a defaulter borrower is finalized as a willful defaulter, the said borrower's loan
account cannot be transferred to any other financial company or bank; (12) The relevant borrower will be considered a willful defaulter until the loan taken by the willful defaulter is fully recovered/repaid.
7. Fine for Violation of Instructions:
If a financial company violates the instructions mentioned above, or if a financial company knowingly or intentionally violates the said instructions, and it is considered so by Bangladesh Bank, the relevant financial company will be fined not less than 50 (fifty) lakh Taka and not more than 1 (one) crore Taka for the said violation under the powers provided in the Financial Companies Act, 2023. If the said 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 said violation.
8. Reporting:
(1) After identifying and finalizing willful defaulters, the financial company must report the relevant information to the Credit Information Bureau (CIB) of Bangladesh Bank. The willful defaulter must be shown in the CIB as 'Willful Defaulter'; (2) The financial company must submit the information of willful defaulters in the form of a report (in accordance with Annexure-'B') to the Financial Institutions and Markets Department every quarter by the 10 (ten) date of the following month, and all relevant documents and updated information must be presented to the inspection team of Bangladesh Bank as required.
9. This instruction is issued under the powers provided in Section 30(6) and Section 41(2)(g) of the Financial Companies Act, 2023.
10. The above instructions must be implemented from July 01, 2024, based on information/data as of June 30, 2024.
Yours faithfully,
Attachment: As per list.
(Md. Asaduzzaman Khan)
Director (DFIM)
Phone: 9530178.

Source: Date:
Director (DFIM)
Financial Institutions and Markets Department
Bangladesh Bank
Head Office
Dhaka
Dear Sir,
Subject: Regarding exemption from being identified/listed as a willful defaulter.
With reference to the subject mentioned above, it is informed that,------------ (Name of the Financial Company)-------- has sent a letter through letter No. ----------------------- dated ----------------------- to --------------- identifying ----------------------- as a willful defaulter (Letter of the Financial Company attached). Through the said letter, the following matters have been mentioned as reasons for identifying as a willful defaulter:
(a) ---------------
(b) ---------------
(c) ---------------

2. The representation of the undersigned against the aforementioned matters is presented below:
   (a) ---------------
   (b) ---------------
   (c) ---------------
   -------------------------------. Necessary documents/evidence supporting the representation are attached.
3. Now, considering the aforementioned matters, an appeal is submitted to you for granting exemption to -------------------------------------- from the list of willful defaulters.
   Attachment: As per list. Yours faithfully,
   Signature:
   Name:
   Designation:
   Phone No:
   For communication regarding the application (for institutions or companies) Name of the responsible officer:
   Designation:
   Office Phone No:
   Mobile Phone No:
   E-mail:
   Annexure-'A'

Quarterly Report on Willful Defaulters as of ------------- Date Name of the Financial Company:
Serial No. | Lender Financial Company | Branch/Office of the Financial Company | Name of the Willful Defaulter Person/Institution/Company | Type of Institution (Large Industry, Medium Industry, Others) | Nature of Loan (Lease/Maturity/Working Capital, etc.) | Amount of Loan Status | Reason for Becoming Willful Defaulter (Briefly) | Date of Letter Sent for Representation to the Borrower | Date of Reply Submitted by the Borrower | Authority Taking Final Decision (Managing Director/Executive Committee/Board) | Date of Final Notification to the Borrower as a Willful Defaulter | Remarks (Measures taken against the borrower, etc.) Total Name of the responsible officer:
Designation:
Office Phone No:
Mobile Phone No:
E-mail
Annexure-'B'