Monday 28 October 2019

Loan Classification in Bangladesh based on Objective Criteria as per latest BRPD Circular no. 03/2019

As per the Bank Company Act, 1991 amended from time to time lastly in 2013, Bangladesh Bank, the central bank of Bangladesh is responsible to set criteria for Loan Classification in Bangladesh and setting provision requirement against the respective classification. As per the latest Bangladesh Bank BRPD Circular 03/2019, Loan Classification in Bangladesh based on Objective criteria is presented below.

Type of Loan
Classification of Loan Objective Criteria under BRPD cir 03/2019
Continuous Loan
Overdue: From the following day of expiry date
SMA : Overdue  for 2 months or beyond but less than 3 months
SS : overdue for 3 months or beyond but less than 9 months
DF: overdue for 9 months or beyond but less than 12 months
BL: overdue for 12 months or beyond

Demand Loan
Overdue: From the following day of expiry date
SMA: overdue for 2 months or beyond but less than 3 months
SS: overdue for 3 months or beyond but less than 9 months
DF: overdue for 9 months or beyond but less than 12 months
BL: overdue for 12 months or beyond

Term Loan
SMA: overdue installments are equal to or more than the amount of installments due within 2 months.
SS: overdue installments are equal to or more than the amount of installments due within 3 months.
DF: overdue installments are equal to or more than the amount of installments due within 9 months.
BL: overdue installments are equal to or more than the amount of installments due within 12 months.

Note: In case of any installment(s) or part of installment(s) of a Fixed Term Loan is not repaid within the fixed expiry date, the amount of unpaid installment(s) will be termed as ‘past due or overdue installment’ after six months of the expiry date.

Remarks:
Since, overdue installments will be counted after 6 months of expiry; SMA will be after 8 months, SS after 9 months, DF after 15 months, and BL after 18 months of expiry/due dates. Term Loan below 10 lacs will also be fallen under these criteria.   


Explanation on reporting of ‘defaulted’ loan in the format under BRPD Circular 08/2015 [section 2.5 of BRPD circular 3/2019]: According to Bank Company Act 1991; any person, business entity or company will be treated as ‘default borrower’ if their own or associated loan(s) or part of loan(s) or accrued interest/profit remains overdue (as defined by Bangladesh Bank) for 6 months or beyond.  Hence, all DF and BL loans were reported as ‘Defaulted Loan’ in the CL 1 reporting format.

Under the new circular, a portion of ‘SS’ loan, which are overdue for 6 months or beyond but less than 9 months to be recognized as ‘defaulted loan’ to comply with Section: 5(Ga Ga) of Bank Company Act 1991. Accordingly, part of SS (overdue for 6 months or beyond but less than 9 months) along with entire DF and BL loans will be reported as ‘defaulted loan’ in CL 1 format with effect from 30/06/2019.      

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