NBFIs asked to set up willful defaulter units by April 30

Following similar action taken against the banking industry in March, the Bangladesh Bank (BB) has directed non-bank financial institutions (NBFIs) to set up willful defaulter identification units by the end of April to avoid stricter measures by the central bank. In a circular on Wednesday, the central bank said a willful defaulter is defined as someone who fails to repay a loan, advance, investment or any other financial benefit taken by themselves, their family members or their institutions, despite having the ability to do so. The circular instructed NBFIs to set up the identification units led by officials two levels below the managing director and chief executive officer (CEO) of the finance company. The management must carry out all related activities throughout the unit The unit will be responsible for identifying whether defaulting borrowers (individuals and institutions) qualify as willful defaulters, according to the central bank notice. The identification process must begin within 30 days of a borrower defaulting. This timeframe can be extended by a further 30 days with justification. If a borrower is classified as a willful defaulter according to the Finance Companies Act 2023, they will be granted 14 working days to respond to the accusation, says the circular. Non-compliance with regulations regarding willful defaulters will result in fines for NBFIs ranging from Tk 5 million to Tk 10 million. Continued violations will incur a daily penalty of Tk 100,000 by the central bank, it mentions. The BB circular also outlines the consequences for willful defaulters. The list of such individuals and institutions will be shared with the Bangladesh Securities and Exchange Commission and the Registrar of Joint Stock Companies and Firms to impose bans on foreign travel and trade licences -- as authorised by the Bank Company Act. The information will also be forwarded to the relevant authorities responsible for registering vehicles, land, houses and flats. These authorities will then take appropriate action based on their existing laws and regulations, it says. Earlier on March 12 this year, the central bank issued a similar circular regarding willful defaulters in the banking industry. These strict measures are part of the BB's roadmap to reduce defaulted loans to below 8 per cent by June 2026 -- as outlined in a detailed guideline that defines the criteria for identifying willful defaulters. Defaulted loans have emerged as a serious concern for struggling NBFIs, where over 25 per cent of total loans are in default. Meanwhile, a separate central bank order reduced interest rate margins for NBFIs by 50 basis points, although borrowing costs for finance companies remain higher. The push to increase lending and deposit rates comes from a significant hike in the benchmark rate -- known as SMART -- to 10.55 per cent for April, up from 9.61 per cent in March. In a circular issued on the same day, the BB lowered the maximum interest rate margins to 2.00 per cent and 5.00 per cent for deposits and loans, respectively, on top of the SMART rate, effective immediately. Previously, the maximum margins were 2.50 per cent above SMART for deposits and 5.50 per cent above SMART for lending. Following this latest directive, the maximum interest rates on deposits and loans for NBFIs now stand at 12.55 per cent and 15.55 per cent, respectively. Before the circular, the maximum interest rates on deposits and loans in NBFIs were 12.11 per cent and 15.11 per cent, respectively. [email protected]
Published on: 2024-04-03 20:45:36.594654 +0200 CEST