The new loan rescheduling policy that the Bangladesh Bank issued recently will help discipline defaulters as there is no scope for compromising on down payment or extending payment tenure by banks beyond the prescribed limit, said bankers while speaking about the probable impact of the new policy.

In the new circular, the central bank has set the lowest ceiling for down payments in rescheduling loans, said Mohammad Shams-Ul Islam, managing director of Agrani Bank.

Previously, customers could reschedule their loans even at a 2% down payment by taking the consent of the Bangladesh Bank, he said, adding that as per the new guideline, however, there is scope for going to the central bank as bankers will give the final decision.

Moreover, banks cannot compromise on the down payment amount as prescribed in the circular, he continued.

From that perspective, the loan rescheduling policy has become harsher for customers, he added.

According to the new circular issued on 18 July, defaulters are allowed to reschedule their loans by paying down payment at a minimum of 2.5% and a maximum of 4.5% of their outstanding overdue.

Previously, borrowers were required to pay a down payment of 10% to 30%, but they could take a discount from the Bangladesh Bank under special consideration.

Moreover, although banks previously could allow defaulters to reschedule loans for a maximum of three times for up to six years, customers could get the repayment tenure extended to 10-12 years by taking special permission from the Bangladesh Bank.

According to the new circular, customers can reschedule loans for a maximum of four times. There is no scope to extend the repayment tenure.

Mohammad Shams-Ul Islam also said that earlier bankers used to shift the responsibility of rescheduling loans to the central bank, but now lenders themselves will have to take the responsibility, which will help bring about transparency in the industry.

He observed that bankers know their customers very well and they will allow loan rescheduling to them accordingly. As banks are solely responsible for rescheduling their customers' loans, they will be more careful now, he added.

He added that state-owned banks will benefit more from the new policy as their customers are the worst in the industry. Some customers repay loans regularly to private banks but they do not want to pay to the state-owned banks.

The new circular gives a clear message to them that they cannot extend the payment amount or get a discount from the lowest ceiling of down payment. So they will have to either pay or become defaulters.

Md Ataur Rahman Prodhan, managing director and CEO of Sonali Bank Limited, termed the new rescheduling circular a timely one and said it will make banks more active and careful about allowing their customers to reschedule loans.

Loan rescheduling is not the job of the central bank, he said, adding, "Banks lend money, so it is their responsibility to reschedule loans to their customers. If there is any problem in rescheduling loans, banks will take the responsibility," he said.

Moreover, the new rescheduling rules will help state banks bring down their default loans significantly, he added.

Abdur Rouf Talukder, who issued the circular within a week of his joining the Bangladesh Bank as governor, also clarified the objective of the circular in a recent meeting with top executives of banks.

Addressing the bankers during the meeting, he said the central bank's job is to make policy and banks will take the responsibility of rescheduling their customers' loans.

He added that previously loan rescheduling proposals were sent to the central bank for approval, which was not a good practice. The Bangladesh Bank has set the upper limit of the rescheduling period and banks will make their own policies.

Bankers appreciated the governor for letting banks take decisions about a rescheduling of loans.

Mashrur Arefin, managing director and CEO of City Bank, told TBS that the new circular on loan rescheduling will establish corporate governance and transparency as bankers know their customers and who should be given rescheduling facilities.

Selim RF Hussain, chairman of the Association of Bankers Bangladesh Limited (ABB), recently held a press conference over the new loan rescheduling policy.

He claimed that the central bank's recent policy relaxation for rescheduling big defaulted loans will ultimately ensure accountability and good governance in the banking sector.

"The new rescheduling policy is a quantum leap," he commented, adding that loan rescheduling is a common practice in all countries but no country's central bank directly handles it.

"Borrowers are known to the respective banks, not to the central bank. Rescheduling is not a task of the central bank, it is actually the job of bankers," he said.

Loan rescheduling, which used to take 3-4 months earlier, will now take only 7-10 days thanks to the new central bank guidelines, observed the ABB chairman.

"If banks have good governance and efficient manpower, then they will surely perform better in the wake of the relaxation of the rescheduling policy."

What's there in the new rescheduling policy?

Large defaulters with a loan of Tk500 crore and above will now get a maximum of eight years to make repayments after taking rescheduling facilities for the first time.

They can reschedule loans up to a fourth time.

The Bangladesh Bank has restructured its loan rescheduling policy by widening the repayment period by nearly five times and reducing down payments by four times to facilitate loan defaulters to keep their accounts regular.

Earlier, a defaulter with any amount of long-term loan could get a maximum of six years to repay through rescheduling, while the repayment period was 3.5 years for a short-term loan.

The number of times defaulters were allowed to reschedule loans was a maximum of three for both long- and short-term loans.

In the new circular, rescheduling facilities are separate for big and small loan defaulters.

In the case of down payments, defaulters will provide the highest 4.5% of the total overdue amount or 7% of overdue installments, whichever will be less, according to the new circular.

Defaulters earlier had to pay the highest 30% of  the overdue amount during loan rescheduling.

The current practice is that if any borrower fails to pay the required down payment or wants to extend the repayment period beyond the regulatory limit, lenders send the proposal to the central bank for final approval.

Following the lenders' proposals, the central bank has been allowing defaulters to reschedule loans for 10-12 years, ignoring its own policy which in turn led to widespread criticism in the industry.

From now on, lenders will have full authority to provide rescheduling facilities to their clients according to the new restructured policy. If any defaulter does not comply with the rule, there will be no option to send the proposal to the central bank for special consideration.

Banks have been asked to formulate their own rescheduling policies in line with the central bank's new master circular in this regard.