Loan Classification and Provisioning Guide

Investments or Loans and
Advances
 Loan Classification and Provisioning
 Client Selection & CLAnalysis
 Loan Rescheduling
 Loan Write Off
1

Loan Classification and Provisioning
BRPD Circular No Dated
14 September 23, 2012
19 December 27, 2012
05 May 29, 2013
16 November 18, 2014
08 August 02, 2015
03 April 21, 2019
2

Loan Classification and Provisioning
Changes During 2021
BRPD Circular
No
Dated Circular
link
03 January 31, 2021 Click here
05 March 24, 2021 Click here
19 August 26, 2021 Click here
Circular Letter-50 December 14, 2021 Click here
3

Loan Rescheduling
15 September 23, 2012
06 May 29, 2013
05 February 23, 2015
4

Loan Write Off
01 February 06, 2019
5

Loan Process
6
Branch
CRM
Approval
•CRM
•Credit Committee
• Executive Committee
•Board of Directors
CAD
Branch
Monitoring
Application
Proposal
Analysis
Forward
Sanction

Categories of Loans and Advances
Categories of Loans & Advances
Continuous
Loan
Demand Loan
Fixed Term
Loan
Short – term and
Agricultural &
Micro – Credit
7

Definition of Loan Categories
 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 Loan. Examples are: Cash Credit, Overdraft, etc.
 Demand Loan : The loans that become repayable on demand by the bank will
be treated as Demand Loan. If any contingent or any other liabilities are turned
to forced loan (i.e. without any prior approval as regular loan) those too will be
treated as Demand Loan. Such as: Forced Loan against Imported Merchandise,
Payment against Document, Foreign Bill Purchased, and Inland Bill Purchased,
etc. 8

 Fixed Term Loan: The loans, which are repayable within a specific time period
under a specific repayment schedule, will be treated as Fixed Term Loan.
 Short-term Agricultural & Micro-Credit: Short-term Agricultural Credit will
include the short-term credits as listed under the Annual Credit Programme
issued by the Agricultural Credit and Financial Inclusion Department (ACFID)
of Bangladesh Bank.
9

 As per BRPD circular no. 03 dated 21 April, 2019 If a continuous loan or demand loan
is not repaid/renewed within the fixed expiry date for repayment or after demand by the
bank will be treated as past due/overdue from the following day of the expiry date.
Practical Example
10
Past due or Overdue

 As per BRPD circular no. 14 dated 23 Sept 2012 & 03 dated 21 April, 2019 In
case of any installment(s) or part of installment(s) of a Fixed Term Loan and the
short term Agricultural & Micro credit loan is not repaid within the fixed expiry
date, the amount of unpaid installment(s) will be treated as past due/overdue
after six months of the expiry date.
Practical Example
11
Past due or Overdue

Basis for Loan Classification:
Loan Classification
Objective Criteria Qualitative Judgment
12

Objective Criteria:
Categories of
Loans
UC (Unclassified) Classified
STD
(Standard)
SMA( Special
Mention
Account)
SS (Sub –
Standard)
DF (Doubtful) BL (Bad/Loss)
Continuous 0-1.99
Months
2-2.99
Months
03-8.99
Months
9 – 11.99
Months
12 or beyond
Months
Demand 0-1.99
Months
2-2.99
Months
03-8.99
Months
9 – 11.99
Months
12 or beyond
Months
Fixed term 0-1.99
Months
2-8.99
Months
09-14.99
Months
15 – 17.99
Months
18 or beyond
Months
Short-term
Agricultural &
Micro-Credit
0-12
Months -
After 12
months
After 36
months
After 60 Months
13

Accounting for interest of Classified Loan
 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, instead of crediting the same to Income Account.
 As soon as any loan or advance is classified as 'Bad/Loss', charging of interest in
the same account will cease.
14

 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 on any 'Bad/Loss' 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 accrued but not charged is to be
recovered from the said deposit and the principal to be adjusted afterwards.
15
Accounting for interest of Classified Loan

Maintenance of Provision
Particulars
Short
term
Agri.
Credi
t
Consumer Financing
SMEF
Special
General
Provision
COVID-
19 For
SME
Loan
Loans to
BHs/MBs/S
Ds
All
other
Credit
Special
General
Provision
COVID-19
(Other than
SME)
Other
than
HF, LP
HF LP
UC
Standar
d
1% 2% 1% 2% 0.25% 1.5% 2% 1% 2%
SMA - 2% 1% 2% 0.25% 1.5% 2% 1% 2%
Classifie
d
SS 5% 20% 20% 20% 5% 20% 20% -
DF 5% 50% 50% 50% 20% 50% 50% -
B/L 100% 100% 100% 100% 100% 100% 100% -
16

Base for Provision
Calculation of
Base for
Provision
Outstanding – Interest
Suspense – Value of Eligible
Collateral Security
a. Deposit with the same bank under
lien against the loan,
b. Government bond/savings
certificate under lien,
c. Guarantee given by Government
or Bangladesh Bank.
Outstanding – Interest Suspense – Value of
Eligible Collateral Security
Or
15% of out standing Balance (Greater of
the above two amounts)
For all other eligible
collateral security
17

Eligible Collateral
 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.
18

Changes Due to COVID-19
Time Extension of Term Loan
 As per BRPD Circular No. 03 Dated: 31.01.2021, the maturity of a term
loan may be extended subject to the following conditions and restrictions:
 a) The loan must be performing ( Unclassified: Standard or SMA )
 c) The maturity date may be extended by a period of time not exceeding
50% of the current remaining time to maturity or maximum 2 years.
19

Repayment of Continuous & Demand Loan
• As per BRPD Circular No. 05 Dated: 24.03.2021, All the unclassified continuous
loan at 01.01.2021 which are expired but not renewed, interest charged but not
yet realized on such loan accounts from 01.01.2020 to 31.12.2020 will be repaid
by six equal quarterly instalments from March 2021 to June 2022 along with the
interest that will be charged till June 2022.
• In case of Demand loan outstanding amount must be repaid within March 2021
to December 2022 through 8 equal quarterly instalments.
20

Loan Classification
 AS per BRPD Circular Letter-53 Dated 30.12.2021, loans can not be
classified(downgraded) if 15% of the total amount due from January 2021 to
December 2021 is repaid within the last working day of December 2021.
Loans should be reported based on the classification status of 01 January 2021
if clients pay only 15% of total instalments due during 2021.
 The remaining due amount will be repaid within 1 year after the expiry of
such loan.
21

Transfer of Interest to Income Account
 As per BRPD Circular Letter no-53 Dated: 30.12.2021, Interest accrued on any
loan account during 2021 can be transferred to income account subject to the
condition that the clients must pay at least 15% of due amount during 2021.
 Extra 2% general provision must be maintained against the loan accounts which
took the facilities granted by BRPD 19 Dated: 26.08.2021 and should be added
to “ Special General Provision COVID-19”.
 In case of SME loan the said provision shall be 1.5% as per BRPD Circular
letter no. 52 Dated: 29.12.2021.
22

Stimulus Fund 2020
1. Any classified client is not allowed for stimulus fund
2. This facility must be approved only for working capital purpose.
3. For new loan client’s ICRRS score must be marginal at least.
4. This facility will be allowable only economically affected by COVID
19 (other than CMSME )
5. This loan facility can not be approved for enhance the business or for
start up new industry or service sector
6. Interest of the loan must be 9% whereas Government will provide 4.5%
interest for the first year.
23

Stimulus Fund 2020
7. If any client become classified Bangladesh Bank will not provide
interest for the client
8. Before disbursement: Bangladesh Bank No Objection Certificate
required
9. This loan validity will be maximum 3 years but government will
reimburse the interest portion amount maximum for one year for a
single borrower.
24

Stimulus Fund 2021
1. Maximum 4.5% interest can be charged on borrower a/c and the rest
interest has to be preserved on separate a/c which will be subsidized by
government. However, if the borrower fails to pay his portion in due
time, then full interest can be charged on borrower a/c and will be
considered as borrower liability.
2. Payment of Loan
 Installment on stimulus fund has to paid in the following manner:
a. Borrower will get extra 6 months grace period from March 2021.
b. After grace period the rest amount has to be paid by 18 equal
monthly installments.
25

Stimulus Fund 2021
 Approved limit
1. Maximum allowable limit of loan/investment is 30% of the working
capital facility enjoyed as on 31.12.2019 by the client.
2. In case of new client who had not working capital loan, Maximum
allowable limit of loan/investment is 30% of the working capital
facility of the client eligible to enjoy.
 If any client taking working capital loan from other bank/banks, eligible
limit is applicable aggregating total working capital loan and similarly
stimulus fund limit will be determined in the same manner.
26

Client Selection Criteria
 CL analysis
 Reschedule Investments
 Restructured Investments
 Writ clients
 BB Inspection Report
 Latest Internal Audit Report
 Previous year’s External Audit Report
 Board Meeting Minutes
 EC Meeting Minutes
 Top 20 or 50 Clients
 Defaulter List published by BB/ High Court
 Newly Disbursed Investments
27

CL form
1. CL-1 is the complication/summary of 4 other forms
2. CL-2 is for reporting loan classification of Continuous Loan
3. CL-3 is for reporting loan classification of Demand Loan
4. CL-4 is for reporting loan classification of Term Loan
5. CL-5 is for reporting loan classification of Short-term Agricultural and Micro-Credit.
28

Loan Rescheduling
GUIDELINES FOR CONSIDERING APPLICATION FOR LOAN
RESCHEDULING
 Banks shall comply with the following instructions while considering application for loan
rescheduling of non-performing loan (loans classified as Sub-standard, Doubtful and Bad/Loss):
 The bank must have a policy approved by its Board of Directors in place that defines the
circumstances and conditions under which a loan may be rescheduled, consistent with this
circular
 When a borrower asks for rescheduling of loan, the bank shall meticulously examine the causes
as to why the loan has become non-performing. If it is detected from such review that the
borrower has diverted funds elsewhere or the borrower is a habitual loan defaulter, the bank shall
not consider the application for loan rescheduling and shall take/continue all legal steps for
recovery of the loans.
29

Loan Rescheduling
GUIDELINES FOR CONSIDERING APPLICATION FOR LOAN
RESCHEDULING
 If a borrower while applying for rescheduling, pays the required down payment in cash at a time,
the bank must address the application within 03 (three) months upon receipt. If the borrower gives
any cheque, pay order or any other instrument against down payment, the bank must ensure
encashment of such instrument before processing of the rescheduling case. Any previous payment
from time to time shall not be treated as a down payment.
 Banks shall review the borrower's cash flow statement, audited balance sheet, income statement
and other financial statements in order to ensure whether the borrower would be able to repay the
rescheduled installments/existing liability or not.
30

Time Limit For Rescheduling
 These time limits are absolute maximums only, and banks are encouraged to
establish shorter time limits in their internal policies. Each loan that is being
considered for rescheduling should be evaluated on its own merits and not
automatically rescheduled for the maximum time period or rescheduled for the
maximum number of three (03) times.
31

Time limit for rescheduling Continuous Loan:
Frequency Classified as Sub-standard Classified as
Doubtful
Classified as
Bad/Loss
First
Rescheduling
Maximum 18 (eighteen)
months from the date of
rescheduling
Maximum 12 (twelve)
rescheduling
Maximum 12 (twelve)
rescheduling
Second
Rescheduling
Maximum 12 (twelve)
Rescheduling
Maximum 09 (nine)
rescheduling
Maximum 09 (nine) months
from the date of rescheduling
Third
Rescheduling
Maximum 06 (six) months
Maximum 06 (six)
rescheduling
Maximum 06 (six)
rescheduling
32
Conditions: During the rescheduled period all required principal and interest payments must be
made. Rescheduled amount should be repaid in monthly installments. If the amount of defaulted
installments is equal to the amount of 3(monthly) installments, the loan will be classified as
Bad/Loss.

Time limit for rescheduling Demand Loan:
Frequency Classified as
Sub-standard
Classified as
Doubtful
Classified as
Bad/Loss
First
Rescheduling
Maximum 12 (twelve) months
Maximum 09 (nine)months from
the date of rescheduling
Maximum 09 (nine) months from
Second
Rescheduling
Maximum 09 (nine) months from
from the date of
Rescheduling
Maximum 06 (six)
rescheduling
Third
Rescheduling
Maximum 06 (six) months from the
date of rescheduling
from the date of
rescheduling
Maximum 06 (six)
rescheduling
33
Conditions: During the rescheduled period all required principal and interest payments must be made.
Rescheduled amount should be repaid in monthly installments. If the amount of defaulted installments is equal
to the amount of 3(monthly) installments, the loan will be classified as Bad/Loss.

Time limit for rescheduling Fixed Term Loan:
 The loan which is repayable within a specified time period under a prescribed
repayment schedule is treated as Term Loan. In case of rescheduling of any classified
Fixed Term Loan, following time-limit may be added with the expiry date/repayment
date of last installment to determine the repayment schedule which will be started from
the date of rescheduling. If the loan is rescheduled after the expiry date, the following
time-limit will be applicable from the date of rescheduling:
34

Time limit for rescheduling Fixed Term
Loan:
Frequency Classified as
Sub-standard
Classified as
Doubtful
Classified as
Bad/Loss
First
Rescheduling
Maximum 36 (thirty
six)months
Maximum 24 (twenty four)
months
Maximum 24 (twenty
four) months
Second
Rescheduling
Maximum 24 (twenty
four)months
Maximum 18
(eighteen) months
Maximum 18 (eighteen)
months
Third
Rescheduling
Maximum 12
(twelve)months
Maximum 12 (twelve)
months
Maximum 12 (twelve)
months
35
Conditions: During the rescheduled period all required principal and interest payments must be made.
Rescheduled amount should be repaid in monthly/quarterly installments. If the amount of defaulted
installments is equal to the amount of 6 monthly or 2 quarterly installments, the loan will be classified
as Bad/Loss.”

Time limit for rescheduling for Short-term Agricultural and
Micro- Credit:
 :
36
In case of rescheduling of any classified Short-term Agricultural and Micro-Credit, 6 months may be added
with following time-limit from the day after the expiry date/repayment date of last installment to determine
the repayment schedule which will be started from the date of rescheduling. If the loan is rescheduled after
the expiry date, the following time-limit will be
applicable
First Rescheduling Repayment time limit for rescheduling should not exceed 2 two)
years.
Second Rescheduling Maximum 1(one) year.
Third Rescheduling Maximum 6(six) months.

Loan rescheduling restriction
a. If the loan becomes default after third rescheduling, the borrower will be treated
as a habitual loan defaulter and the bank shall not consider for further loan
rescheduling.
b. Approval of loan rescheduling cannot be made below the level at which it was
originally sanctioned. A detailed appraisal report including implications of such
loan rescheduling on the income and other areas of the bank must be placed to
the approving authority at the time of placing the rescheduling proposal.
37

DOWN PAYMENT OF TERM LOANS:
a) Application for first time rescheduling will be taken into consideration upon receiving
cash payment of at least 15% of the overdue installments or 10% of the total outstanding
amount of loan, whichever is less.
b) Application for second time rescheduling will be considered upon receiving cash
payment of minimum 30% of the overdue installments or 20% of the total outstanding
amount of loan, whichever is less.
c) Application for rescheduling third time will be considered upon receiving cash payment
of minimum 50% of the overdue installments or 30% of the total outstanding amount of
loan, whichever is less.
d) The rate of down payments for Short-term Agricultural and Micro-Credit will be same as
above. 38

DOWN PAYMENT OF DEMAND AND CONTINUOUS
LOAN
First time rescheduling Rate of Down payment
Amount of Overdue Loan Rate of Down payment Second time Second time
Up to Tk.1.00 (one) crore 15%
Cash payment of
minimum 30% of the
overdue installments
or 20% of the total
outstanding amount
of loan, whichever is
less.
Minimum 50% of the
overdue installments or
30% of the total
outstanding amount of
loan, whichever is less,
shall have to be repaid in
cash.
Above Tk.1.00(one) crore
and up to
Tk.5.00(five) crore
10%
(but not less than
Tk.15.00 lac)
Above Tk. 5.00(five)
crore
5%
(but not less than
Tk.50.00 lac)
39

NEW FACILITY AFTER RESCHEDULE
• As per BRPD Circular no 06 dated 29 May 2013, After repayment of
minimum 15% of outstanding balance client will be eligible for new
loan facility.
• In case of borrowing from others Banks, the Same rule will be
applicable.
40

RESTRICTION ON EXTENDING THE TERM TO
MATURITY OF A TERM LOAN:
 The term to maturity of a term loan may be extended subject to the following
conditions and restrictions:
 a) The loan must be performing ( Unclassified: Standard or SMA )
 b) The decision should be made at the level where the loan was originally
sanctioned
 c) The maturity date may be extended by a period of time not exceeding 25%
of the current remaining time to maturity
41

Write-off policy
 Loan classified as BL can be written-off provided that 3 (three) years have been passed and 100%
provision has been kept.
 If 100% provision kept against the account is not sufficient for write-off, then current year’s
income may be debited for loan write-off purpose.
 Loan write-off does not mean that the borrower is relieved from his debt obligations and the
banker will not do anything after loan write-off. Rather banker will initiate / continue all out efforts
for recovery of written-off loan liability, and if legal action is not already initiated against the
borrower, then legal action will be initiated against the client with immediate effect.
 The bank will open and maintain a separate debt collection unit which will look after recovery of
classified as well as written-off loan accounts. Outside agencies may be deployed in this purpose as
per BRPD Circular no 02/2015.
 No Loan/ Investment can be partially written-off.
42

Write-off policy
 Balance of written-off loan account(s) will be mentioned in the “notes to accounts” of the Annual
Report of the bank.
 No Loan/ Investment can be written-off without the authorization of the board of the directors.
 The borrower whose loan is written-off will still be treated as loan defaulter and his loan
classification status will be reported in the CIB database of Bangladesh Bank as BLW.
43

Loan and Advances Journal
 At the time of initial disbursement:
Loan and Advance receivable- Customer A/C……………… Dr.
Deposit – Customer A/C………………………………………………… Cr.
 At the time of interest charged on STD loans:
Loan and Advance receivable- Customer A/C………………. Dr.
Interest Income A/C …………………………………………………….. Cr.
 At the time of interest charged on Classified Loans (SS, DF, and BL):
Loan and Advance receivable- Customer A/C………………. Dr.
Interest Suspense A/C …………………………………………………. Cr.
44

 At the time of collection/ recovery of STD loans:
Deposit- Customer A/C or Cash or Bank A/C ………………… Dr.
Loan and Advance receivable- Customer A/C……………….……Cr.
 At the time of collection/ recovery of Classified loans (SS, DF, BL):
Deposit- Customer A/C or Cash or Bank A/C ………………… Dr.
Interest Suspense A/C …………………………………… …… Dr.
Loan and Advance receivable- Customer A/C……………………. Cr.
Interest Income A/C ……………………………………………… Cr.
 At the of making provision:
Income Statement ………………………………………………… Dr.
Provision for loans and advances ………………………………..…. Cr.
45

 At the time of loan rescheduling:
Cash or Bank
A/C…………………………………………………………… Dr.
Interest Suspense A/C ……………………………………..……. Dr.
Provision for loans and advances …………………… .………. Dr.
Interest Income A/C ……………………………………………. … Cr.
Loan and Advance receivable- Customer A/C… …...……………...Cr.
 At the time of loans write off:
Income statement (Short fall) …………………………………. Dr.
Provision for loans and advances …………………………..…. Dr.
Interest Suspense A/C …………………………………………..Dr.
Loan and Advance receivable- Customer A/C……………….……..Cr.
46

Loan Classification and Provisioning Guide

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