Many large borrowers’ business and their debt servicing capacities have been affected by many reasons. Considering the socio-economic impacts and employment generation perspective of the affected large borrowers. Loan Rescheduling and Restructuring is now common in modern banking to keep the bad loan regular.
For requesting rescheduling of loans, the banks shall examine the causes as to why the loan has become non-performing. If it is found from such review that the borrower has diverted the funds elsewhere or the borrower is a habitual loan defaulter the bank shall not consider the application for loan rescheduling. Instead, the bank shall take/continue all legal steps for recovery of the loans.
At the time of considering loan rescheduling proposal, bank must review the borrower’s cash flow statement, balance sheet, income statement and other financial statements conduct spot inspection to assess the borrower’s overall capacity to repay rescheduled liability. If a bank is satisfied after reviewing above mentioned statements that the borrower will be able to repay, the loan may be rescheduled. Otherwise, bank shall take legal steps to realize the loan, make necessary provision and take measures to write-off as the case may be.
Single Borrower Exposure and Large Loans
For reducing credit concentration risk of banks, Bangladesh Bank advises the scheduled banks from time to time to fix limits on their large credit exposures and their exposures to single and group borrowers. In general, and as practice internationally, exposure ceiling is derived from a bank’s total capital as defined under capital adequacy standards of Basel.
In general, single borrower exposure limit is 35% of the bank’s total capital including non funded facilities subject to the condition that the maximum outstanding against fund based financing facilities (funded facilities) do not exceed 15%. In case of export sector, single borrower exposure limit is 50% of the bank’s total capital including non-funded facilities subject to the condition that the maximum outstanding against funded financing facilities do not exceed 15%. However, for financing in Power sector maximum allowable funded limit can be beyond 15% but not exceeding 25% of bank’s capital.