After restructuring, now what?  

When the guidelines on loan restructuring were issued three years back, its issuer and relevant policymakers were, possibly, aware of the ultimate fate of the move.

They knew the borrowers concerned were up to buy time through the loan restructuring facility and the latter would never repay their debt to banks. Yet the pressure was so intense that the central bank could not withstand it and issued the guideline.

It did not take too long a time to know what was going to happen with the loan restructuring facility. The scheme, actually, fell through as soon as the time for payment of the first instalment of restructured loan came. None of the errant borrowers did pay the right amount of the instalment, 2.0 per cent of his/her total outstanding loan.

The banks concerned were confused when their large borrowers concerned wanted to pay an amount less than the size of the actual instalment. They sought central bank advice and the latter allegedly asked them to deal with issue with their clients concerned. So, the banks did accept the amounts under the so-called bank-client arrangement, violating the relevant provisions of the guideline.

 Since then nothing could be known about the loan restructuring facility from all the parties involved.

Time has gone by and the defaulters who had managed the loan facility have, allegedly, failed to pay instalments after a moratorium period of maximum 12 months.

The BB guideline says failure to pay two consecutive instalments 'shall' be considered default and the restructured facility would stand cancelled and the loan 'shall be classified' as 'per the existing policy'. The bank concerned shall take all possible legal steps for recovery of defaulted loans, failing in which will result in bank filing suit under the Bankruptcy Act, 1997. 

Allegations have it that most clients have defaulted on repayment of their due instalments. Yet banks, reportedly, have taken a lenient attitude towards the clients concerned. The central bank is also maintaining total silence on the issue.

The fact remains that loans that were brought under the restructuring facility were 'bad' ones. When the facility was granted to a defaulting borrower, his or her loan was treated as the 'Special Mention Account' for the purpose of classification, helping the borrower to shed the stigma of 'defaulter'.

According to a report published in this paper on Saturday last, a move is now underway by some recipients of the restructuring facility to seek some other arrangement for 'repayment' of their loans.

The borrowers who have availed of the loan restructuring facility has got one advantage--- they are no longer regarded as loan-defaulters--- though they have failed to fulfil the conditions of the guideline in question. Since nothing is being decided about their fate either by the lending institutions or the central bank, they are enjoying the privilege of regular customers. That is why the names of these borrowers were not on the list of bank loan defaulters, placed by Finance Minister AMA Muhith in parliament last week.

The banks concerned---bulk of the loans belongs to the state-owned banks--- also got some relief as far as provisioning of the bad loans is concerned. They, together, did not have to provide for bad loans worth Tk 150 billion. A total of 20 groups did apply for the restructuring facility, but only 10 having a combined bad loan worth Tk 150 billion got it.

Some years back India had also introduced the restructured loan mechanism for banks, most of them were state-owned ones. But, following unsatisfactory results, the Reserve Bank of India (RBI) in February this year halted the mechanism and rolled out new rules that prompt banks to take a greater number of defaulters to bankruptcy court. 

The RBI had set strict timelines for lenders to take action against the borrowers concerned and made provisions for penalties if banks failed to act in timely manner. India has bad loans, including restructured loans, amounting to Rupees 9.5 trillion in the middle of the last year.

The situation is a bit different in Bangladesh as far as classified loans are concerned. Banks are usually not interested even to take their errant clients to courts and try their best to make some sort of arrangements with them with a hope of recovering their funds. But in the case of state-owned banks, the attitude of the officials is somewhat different. They are neither interested to sue the bad clients nor serious to recover their banks' funds by striking some kind of arrangements.

The central bank, unfortunately, is not exercising its power as per law to deal with a section of errant lenders and borrowers. This is quite evident from its handling of loan restructuring facility. The RBI too had introduced the facility, but took a tough stance when it saw the facility was not working. As the banking sector's regulator, the Bangladesh Bank enjoys enough power to deal with both errant banks and borrowers.

The banking sector insiders do know who floated the idea of loan-restructuring and got it in place through hard lobbying with the power-that-be.

In fact, a few errant borrowers of large loans had exhausted all the options available to dodge repayments to banks and saw the restructuring facility as the last tool to remain afloat. They have exhausted that too. It is, thus, time for them to come out with yet another innovative idea to stall repayments of their debts to banks.

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