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POLICY ON SINGLE BORROWER EXPOSURE

In general, and as practiced internationally, exposure ceiling is derived from a bank's total
capital as defined under capital adequacy standards (Tier I and Tier II Capital).

As a result of increase in capital of almost all the banks, now it has been decided to reduce
the single borrower exposure limit from 50% to 35%. Thus-

(a) The total outstanding financing facilities by a bank to any single person or enterprise or
organization of a group shall not at any point of time exceed 35% of the bank's total capital
subject to the condition that the maximum outstanding against fund based financing facilities
(funded facilities) do not exceed 15% of the total capital.

(b) Non-funded credit facilities, e.g. letter of credit, guarantee etc. Can be provided to a single
large borrower. But under no circumstances, the total amount of the funded and non-funded
credit facilities shall exceed 35% of a bank's total capital.

(c) However, in case of export sector single borrower exposure limit shall remain unchanged
at 50% of the bank's total capital. But funded facilities in case of export credit shall also not
exceed 15% of the total capital.

(d) Loan sanctioned to any individual or enterprise or any organization of a group amounting
to 10% or more of a bank's total capital shall be considered as large loan.

The banks will be able to sanction large loans as per the following limits set against their
respective classified loans :

Rate of net classified loans highest rate for large loan against total loans & advances
Upto 5% 56%
More than 5% but upto 10% 52%
More than 10% but upto 15% 48%
More than 15% but upto 20% 44%
More than 20% 40%

(c) In order to determine the above maximum rates of large loans, all non-funded credit
facilities e.g. letter of credit, guarantee etc. included in the loan shall be considered as 50%
credit equivalent. However, the entire amount of non-funded credit facilities shall be included
in determining the total credit facilities provided to an individual or enterprises or an
organization of a group.

03. (a) A public limited company, which has 50% or more public shareholdings, shall not be
considered as an enterprise/organization of any group.

(b) In the cases of credit facilities provided against government guarantees and AAA rated
Multilateral Development Banks (MDBs) guarantee, the aforementioned restrictions shall not
be applicable. 24

(c) In the cases of loans backed by cash and encashable securities (e.g.FDR), the actual
lending facilities shall be determined by deducting the amount of such securities from the
outstanding balance of the loans.
04. (a) Banks should collect the large loan information on their borrowers form Credit
Information Bureau (CIB) of Bangladesh Bank before sanctioning renewing or rescheduling
large loans in order to ensure that credit facilities are not being provided to defaulters.

(b) Banks must perform Lending Risk Analysis (LRA) before sanctioning or renewing large
loans. If the rating of an LRA turns out to be "marginal", a bank shall not sanction the large
loan, but it can consider renewal of an existing large loan taking into account other favorable,
conditions and factors. However if the result of an LRA is unsatisfactory, neither sanction nor
renewal of large loans can be considered.

(c) While sanctioning or renewing of large loan, a bank should judge its borrowers overall
debt repayment capacity taking into consideration the borrower's liabilities with other banks
and financial institutions.

(d) A banks shall examine is borrower's Cash Flow Statement, Audited Balance Sheet,
Income Statement and other financial statements to make sure that its borrower has the ability
to repay the loan.

(e) Sanctioning, renewing or rescheduling of large loans should be approved by the Board of
Directors in case of local banks. Such decisions should be taken by the Chief Executives in
case of foreign banks. However, while approving proposals of large loans, among other
things, compliance with the above guidelines must be ensured.

05. For the loans that have already been disbursed with the approval of Bangladesh Bank, and
that have exceeded the limit as stipulated in Section 01 (mentioned above), banks shall take
necessary steps to bring down the loan amount within the specified limit. In order to
accomplish this condition, banks may, if necessary, arrange partaking with other banks.
However, for continuous loans, the limits has to be brought down as per Section 02 within
December 2005. For term loans, the deadline is December 200625 and the deadline for both
continuous & term is December 2006

06. Banks shall submit the monthly statement of large loan in the specified format (Form-L)
to Department of Off-site Supervision of Bangladesh Bank within 10 days after the end of
respective month.

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[24] BRPD Circular No. 02 dated February 19, 2007
[25] BRPD Circular No. 16 dated November 16, 2005
POLICY ON LOAN CLASSIFICATION AND PROVISIONING

The process of gradually upgrading the policies on loan classification and provisioning to the
international level is going on. Measures have been taken to strengthen the credit discipline
and the process of classification has been simplified.

1. Categories of Loans

All loans and advances will be grouped into 4(four) categories for the purpose of
classification, namely (a) Continuous Loan (b) Demand Loan (c) Fixed Term Loan and (d)
Short-term Agricultural and Micro Credit.

Continuous Loan: - The loan Accounts in which transactions may be made within certain
limit and have an expiry date for full adjustment will be treated as Continuous Loans.
Examples are: CC, OD etc.

Demand Loan: The loans that become repayable on demand by the bank will be treated as
Demand Loans. If any contingent or any other liabilities are turned to forced loans (i.e.
without any prior approval as regular loan) those too will be treated as Demand Loans. Such
as: Forced LIM, PAD, FBP, and IBP etc.

Fixed Term Loan: The loans which are repayable within a specific time period under a
specific repayment schedule will be treated as Fixed Term Loans.

Short-term Agricultural Credit will include the short-term credits as listed under the Annual
Credit Programme issued by the Agricultural Credit Department of Bangladesh Bank. Credits
in the agricultural sector repayable within less than 12 months will also be included herein.
Short-term Micro-Credits will include any micro-credits for less than Tk.25,000/= and
repayable within less than 12 months, be those termed in any names such as Non-agricultural
credit, Self-reliant Credit, Weaver's Credit or Bank's individual project credit.

2. Basis for Loan Classification: -

(A) Objective Criteria:

(1) Any Continuous Loan if not repaid/renewed within the fixed expiry date for repayment
will be treated as past due/overdue from the following day of the expiry date. This loan will
be classified as Sub-standard if it remains past due/overdue for 6 months or beyond but less
than 9 months, as `Doubtful' if for 9 months or beyond but less than 12 months and as `Bad-
Debt' if for 12months or beyond.

(2) Any Demand Loan if not repaid/rescheduled within the fixed expiry date for repayment
will be treated as past due/overdue from the following day of the expiry date. This Loan will
be classified as Sub-standard if it remains past due/overdue for 6 months or beyond but not
over 9 months from the date of claim by the bank or from the date of creation of the forced
loan; likewise the loan will be classified as "Doubtful' and Bad/loss if remains past
due/overdue for 9 months or beyond but not over 12 months and for 12 months and beyond
respectively.
(3) In case any installment (s) or part of installment (s) of a Fixed Term Loan is not repaid
within the due date, the amount of unpaid installment (s) will be termed as `defaulted
installment'.

(3.1) In case of Fixed Term Loans, which are repayable within maximum five years of time: -

If the amount of `defaulted installment' is equal to or more than the amount of installment (s)
due within 6 months, the entire loan will be classified as ``Sub-standard''.

If the amount of 'defaulted installment' is equal to or more than the amount of installment (s)
due within 12 months, the entire loan will be classified as ''Doubtful.

If the amount of 'defaulted installment' is equal to or more than the amount of installment (s)
due within 18 months, the entire loan will be classified as ''Bad -Debt.''

(3.2) In case of Fixed Term Loans, which are repayable in more than five years of time: -

(a) If the amount of `defaulted installment' is equal to or more than the amount of installment
(s) due within 12 months, the entire loan will be classified as 'Sub-standard.'

(b) If the amount of `defaulted installment ' is equal to or more than the amount of installment
(s) due within 18 months, the entire loan will be classified as 'Doubtful'.

(c) If the amount of 'defaulted installment 'is equal to or more than the amount of installment
(s) due within 24 months, the entire loan will be classified as 'Bad-Debt'.

Explanation: If any Fixed Term Loan is repayable at monthly installment, the amount of
installment (s) due within 6 months will be equal to the amount of summation of 6 monthly
installments. Similarly, if repayable at quarterly installment, the amount of installment (s) due
within 6 months will be equal to the amount of summation of 2 quarterly installments.

(4) The Short-term Agricultural and Micro - Credit will be considered irregular if not repaid
within the due date as stipulated in the loan agreement. If the said irregular status continues,
the credit will be classified as 'Substandard ' after a period of 12 months, as 'Doubtful' after a
period of 36 months and as 'Bad Debt' after a period of 60 months from the stipulated due
date as per loan agreement.

(5) All unclassified loans other than Special Mention Account (SMA) will be treated as
Standard.

(6) A Continuous credit, Demand loan or a Term Loan which will remain overdue for a period
of 90 days or more, will be put into the "Special Mention Account (SMA)''. This will help
banks to look at accounts with potential problems in a focused manner and it will capture
early warning signals for accounts showing first sign of weakness. Loans in the "Special
Mention Account (SMA)" will have to be reported to the Credit Information Bureau (CIB) of
Bangladesh Bank. However, it is reiterated that loans in the "Special Mention Account" will
not be treated as defaulted loan for the purpose of section 27KaKa(3) of the Bank Company
Act, 1991.
(B). Qualitative Judgment:

If any uncertainty or doubt arises in respect of recovery of any Continuous Loan, Demand
Loan or Fixed Term Loan, the same will have to be classified on the basis of qualitative
judgment be it classifiable or not on the basis of objective criteria.

The concerned bank will classify on the basis of qualitative judgment and can declassify the
loans if qualitative improvement does occur.

But if any loan is classified by the Inspection Team of Bangladesh Bank, the same can be
declassified with the approval of the Board of Directors of the bank. However, before placing
such case to the Board, the CEO and concerned branch manager shall have to certify that the
conditions for declassification have been fulfilled.

3. Accounting of the interest of classified loans:

If any loan or advance is classified as 'Sub-standard' and 'Doubtful', interest accrued on such
loan will be credited to Interest Suspense Account, instead of crediting the same to Income
Account. In case of rescheduled loans the unrealized interest, if any, will be credited to
Interest Suspense Account.

As soon as any loan or advance is classified as 'Bad Debt', charging of interest in the same
account will cease. In case of filing a law-suit for recovery of such loan, interest for the
period till filing of the suit can be charged in the loan account in order to file the same for the
amount of principal plus interest. But interest thus charged in the loan account has to be
preserved in the 'Interest Suspense ' account. If any interest is charged in any 'Bad-Debt'
account for any other special reason, the same will be preserved in the 'Interest Suspense'
account.

If classified loan or part of it is recovered i.e., real deposit is effected in the loan account, first
the interest charged and not charged is to be recovered from the said deposit and the principal
to be adjusted afterwards.

Interest accrued on "Special Mention Account (SMA)'' will be credited to Interest Suspense
Account, instead of crediting the same to Income Account.

4. Maintenance of provision:

(a) (i) Banks will be required to maintain General Provision in the following way :

(1) @ 1% against all unclassified loans (other than loans under Small Enterprise and
Consumer Financing and Special Mention Account.)

(2) @ 2% on the unclassified amount for Small Enterprise Financing.

(3) @ 5% on the unclassified amount for Consumer Financing whereas it has to be


maintained @ 2% on the unclassified amount for (i) Housing Finance and (ii) Loans for
Professionals to set up business under Consumer Financing Scheme.
(4) @ 5% on the outstanding amount of loans kept in the 'Special Mention Account' after
netting off the amount of Interest Suspense.

(b) (i) Banks will maintain provision at the following rates in respect of classified
Continuous, Demand and Fixed Term Loans:

(1) Sub-standard 20%


(2) Doubtful 50%
(3) Bad/Loss 100%

(ii) Provision in respect of Short-term Agricultural and Micro-Credits is to be maintained at


the following rates:

(1) All credits except 'Bad/Loss'(i.e. 'Doubtful', 'Sub-standard', irregular and regular credit
accounts) : 5%
(2) 'Bad/Loss' : 100%

5. Base for Provision :

Provision will be maintained at the above rate on the balance to be ascertained by deducting
the amount of 'Interest Suspense' and value of eligible securities from the outstanding balance
of classified accounts.

6. Eligible Securities :Tanvir

In the definition of 'Eligible Securities' as mentioned in the above paragraph the following
securities will be included as eligible securities in determining base for provision:
-100% of deposit under lien against the loan
-100% of the value of government bond/savings certificate under lien.
-100% of the value of guarantee given by Government or Bangladesh Bank
-100% of the market value of gold or gold ornaments pledged with the bank.
-50% of the market value of easily marketable commodities kept under control of the bank
-Maximum 50% of the market value of land and building mortgaged with the bank
-50% of the average market value for last 06 months or 50% of the face value, whichever is
less, of the shares traded in stock exchange.

7. Determination of Market Value of Eligible Securities

In determining market value of easily marketable commodities, land and building, banks are
advised to follow the instructions mentioned below:

(a) Easily marketable goods will mean pledged, easily encashable/saleable goods that remain
under full control of the bank. However, while the concerned bank branch official will
conduct periodic inspection to verify as to whether issues such as the suitability of goods for
use, expiry period, appropriateness of documentary evidences, up to date insurance cover,
same will have to be assessed by the professional assessor from time to time.
(b) For land and building, banks will have to ensure whether title documents are in order and
concerned land and building will have to be valued by the professional valuation firm along
with completion of proper documentation in favour of the bank. In absence of professional
valuation firm, certificate in favour of such valuation will have to be collected from the
specialized engineer. Nevertheless, temporary houses including tin-shed structure shall not be
shown as building.

(c) In order to facilitate the on-site inspection by our Department of Bank Inspection, banks
are also advised to maintain complete statement of eligible securities on a separate sheet in
the concerned loan file. Information such as description of eligible securities, their
assessment by recognized firm, marketability of the commodity, control of the bank, and
reasons for considering eligible securities etc. will have to be included in that sheet.

LARGE LOAN RESTRUCTURING SCHEME (LLRS)

In order to lessen the burden of potential risks involved in large loans Bangladesh Bank has
taken some steps to encourage the banks to go for inter-bank loan syndication or consortium
loans. Simultaneously banks are also sanctioning loans to large group or enterprise separately
on bilateral basis. Under the circumstance based on the extensive discussions with the banks
the following scheme for rescheduling and restructuring of large loans is being introduced by
Bangladesh Bank for implementation by banks:

1. The scheme will be known as "Large Loan Restructuring Scheme (LLRS)". The objective
of the scheme is to ensure a transparent mechanism for restructuring of loans and to involve
all the financing banks in the restructuring process. LLRS will apply to the loans provided by
more than one banks under or outside the consortium arrangement with outstanding of
Tk.50.00 crore and above. The scheme will not be applicable for loans sanctioned by a single
banking company.

2. A two tier committee will be constituted for implementation of the LLRS. The constitution
and functions of the committees will be as under:

A) Standing Committee

i) The Standing Committee will be constituted comprising the Chief Executives of all banks
participating in LLRS. All banks working in the country shall participate in the scheme in
their own interest and shall become members of the Committee. The Committee will be a self
empowered body, which will lay down policies and guidelines for restructuring and
rescheduling of large loans and monitor the performance of the scheme.

ii) Deputy Governor in charge of the Department of Off-site Supervision (DOS) of


Bangladesh Bank shall act as Chairman of the Committee. The committee shall meet at least
once in every three months.

iii) The committee may decide to have a permanent secretariat and to recruit whole time
officers/staff for the secretariat. It will also lay down policies for sharing administrative and
other expenses by the participating banks.
B. Inter-Bank Committee

i) There shall be an Inter-Bank Committee comprising the financing banks. In case of


consortium loans the Chief Executive of the lead bank and in other cases the Chief Executive
of largest financing bank shall be the Chairman of the Inter-Bank Committee.

ii) The Committee shall examine the viability of restructuring & rescheduling proposals of
the loans and shall approve the proposals in appropriate cases. The committee may, if
necessary, engage external consultants for evaluation of restructuring proposals. For the
purpose, it may also take the help of Credit Rating Agencies working in the country. If any
proposal for restructuring is not found suitable, the Committee will advise the banks to
initiate appropriate legal steps for recovery of the debt.

C. Legal Basis

i) LLRS will be a voluntary and non-statutory mechanism based on Debtor-Creditor


Agreement (DCA) and Inter-Creditor Agreement (ICA). The Standing Committee shall
prepare specimen of such agreements in consultation with lawyers having expertise in the
field.

ii) In the Debtor-Creditor Agreement there should be a clause containing "stand still"
agreement binding for 90 days or 180 days by both sides. Under this clause both the debtor
and creditors shall agree to a legally binding "stand-still" whereby both the parties commit
themselves not to take recourse to any legal action during the "stand-still" period, this would
facilitate the evaluation and processing of debt restructuring proposal without any outside
intervention.

D. Miscellaneous.

i) While evaluating the debt restructuring or rescheduling proposal if any bank requires
approval of Bangladesh Bank from the purview of large loan as per section 27(3) of the Bank
Company Act, 1991 the bank shall have to obtain the approval from Bangladesh Bank for the
same.

ii) If 75% of secured creditors by value, agree to a debt restructuring proposal, the same
would be binding on the remaining secured creditors.

iii) Banks shall disclose in their published Annual Report/Balance Sheet under a separate
"notes" the total amount of debt restructured under LLRS.

iv) Banks shall also send a quarterly statement containing the information of the debt
rescheduled & restructured under LLRS to DOS of Bangladesh Bank.

REQUIREMENT FOR OBTAINING INFORMATION ON


LARGE LOAN FROM CREDIT INFORMATION BUREAU
Previous Circular on the above matter was issued vide CIB Circular No. 02 dated December
27,1992.
In the above circular, branches of the banks were directed to collect from January 01, 1993
onwards, before taking effective steps on fresh loan-application of any borrower after receipt
of the same or before renewal of regular loan account or rescheduling, whether he has availed
of any loan-facility from any other bank and if he has, the required information on that loan
from the Credit Information Bureau through their Head Offices.

POLICY FOR RESCHEDULING OF LOANS

At the time of considering loan rescheduling proposal bank must assess the borrower's overall
repayment capacity taking into account the borrower's liability position with other banks. The
rescheduling shall be for a minimum reasonable period of time.

Rescheduling of Term Loans:

For rescheduling Term Loans following policies shall, henceforth, be followed:

Application for first rescheduling will be considered only after cash payment of at least 15%
of the overdue installments or 10% of the total outstanding amount of loan, whichever, is
less;

Rescheduling application for the second time will be considered after cash payment of
minimum 30% of the overdue installments or 20% of the total outstanding amount of loan,
whichever, is less. Application for rescheduling for more than two times will be considered
after cash payment of minimum 50% of the overdue installments or 30% of the total
outstanding amount of loan, whichever is less;

For rescheduling of Demand and Continuous Loans the rates of down payment, depending on
the loan amount, shall be as under:

Amount of Overdue Loan Rates of Down payment


Up to Tk.1.00 (one) crore 15%
Tk. 1.00(one) crore to Tk. 5.00 (five) crore 10% (but not less than Tk.15.00 lac)
Tk. 5.00(five) crore and above 5% (but not less than Tk.50.00 lac)

POLICY FOR LOAN WRITE OFF


Banks may, at any time, write off loans classified as bad/loss. Those loans which have been
classified as bad/loss for the last five years and for which 100% provisions have been kept
should be written off without delay. Banks may write off loans by debit to their current year's
income account where 100% provision kept is not found adequate for writing off such loans.

All out efforts should be continued for realizing written off loans. Cases must be filed in the
court of law before writing off any loan for which no legal action has been initiated earlier.

A separate "Debt Collection Unit" should be set up in the bank for recovery of written off
loans.

In order to accelerate the settlement of law suits filed against the written off loans or to
realize the receivable written off loans any agency outside the bank can be engaged.