Bangladesh Bank (BB) will neither revoke nor defer the enforcement of its two latest circulars that tightened the conditions for classification, provisioning and rescheduling of term loans, according to a central bank top official.

“We stand by our circulars,” central bank deputy governor SK Sur Chowdhury said replying to a question on the issue. In circular no-7 and 8, issued by the banking regulation and policy department (BRPD) of BB on June 14, the time limits for term loans were curtailed by three-month each.

It implies that banks will have to reduce the time limit for assessing probability of recovery of loans on the basis of qualitative judgments for three categories of classified loans—sub-standard (SS), doubtful (DF) and bad/loss (BL)-- from 1st of July. As per the new rules, non-repayment of loans from one to three months will be treated as sub-standard, from three to six months as doubtful and six to nine months as bad or loss accounts.

The previous rules had allowed six months of time limit for SS, 12 months for DF and 18 months for BL, according to BB. Meanwhile, the business community opposing the rules strongly terming that the industry entrepreneurs are not able to absorb the pressure right now.

Those opposed the issue includes leaders of the Federation of Bangladesh Chambers of Commerce and Industry, Bangladesh Garments Manufacturers and Exporters Association, Bangladesh Knitwear Manufacturers and Exporters Association and Bangladesh Textile Mills Association.

The association leaders said a large amount of loan will turn classified and borrowers will not get a second chance to obtain short-term loans from banks after enforcement of the rules.

Leaders of the Bankers Association, Bangladesh (BAB) have met BB Governor Dr Atiur Rahman on last Monday, demanding a revision on this circular.

They said the volume of classified loans will rise abnormally due to enforcement of the new circular.

The Daily Sun/Bangladesh/ 8th July 2012