Banks will now treat CMSME loans as sub-standard if no instalment is paid for a period between 6 months and 18 months, and as bad or loss if remain unpaid for a period of 30 months or above
The Bangladesh Bank has relaxed loan classification and provisioning rules for cottage, micro, small and medium enterprises (CMSME) to encourage banks to disburse more loans to the sector.
The central bank on Tuesday issued a circular stating that banks will now treat CMSME loans as sub-standard if no instalment is paid for a period between 6 months and 18 months, raising the upper ceiling from 9 months.
In case of non-payment of instalments for a period of 18 months or more but less than 30 months, a loan will be treated as doubtful — the second step of being defaulted. The previous lower ceiling for this category was 12 months.
Meanwhile, those which remain unpaid for a period of 30 months or above will now be treated as bad or loss — the final step of being defaulted, as per the central bank circular.
As per the new rules, banks will have to keep 0.25 percent provision for their regular loans in the CMSME sector — 5 percent provision for sub-standard loans, 20 percent provision for doubtful loans, and 100 percent provision for bad and loss.
Banks previously had to keep 0.50 to 5 percent provision against the regular category, 20 percent against the sub-standard category, 50 percent against the doubtful category, and 100 percent against the bad or loss category.
Bangladesh Bank Executive Director Abu Farah Md Naser told The Business Standard, "We have relaxed the loan classification and provisioning policy for the CMSME sector to encourage the participation of banks in disbursing loans to the sector."
Banks will get some breathing space owing to the relaxation of the loan classification and provisioning rules, he argued.
As of June 30 this year, banks have disbursed only Tk206 crore to the sector out of the Tk20,000-crore stimulus package, as revealed by the latest Bangladesh Bank data.
However, the central bank instructed banks to implement the stimulus package by August this year.