The central bank yesterday approved a restructuring policy under which a big borrower would get a maximum of 12 years to repay loans above Tk 500 crore.

The borrower will not be allowed to provide any cash dividend to shareholders in the first three years after taking the restructuring facility. Even after that period, he has to take permission from the bank to give dividend, says the policy.

For restructuring a lone, a bank has to set aside from its own income an amount equivalent to 2 percent of the loan.

A big borrower can get the facility only once but has to apply for it by June 30 this year, according to the policy.

Bangladesh Bank will soon issue a circular to this effect.

Emerging from a BB board meeting, Deputy Governor SK Sur Chowdhury told reporters that the policy is aimed at giving support to clients who couldn’t repay loans timely due to unavoidable reasons like political unrest, and local and international factors.

It would boost economic activities and ensure repayment of loans, he said. The BB official said they studied the policies of India, Sri Lanka and Vietnam before formulating the restructuring policy.

Talking to The Daily Star, Zahid Hussain, lead economist at World Bank’s Dhaka office, said, “As banks implement this new policy, they will have to make sure that the root cause requiring restructuring is addressed.

“In other words, debt restructuring must come with appropriate corporate reforms or else a floodgate of demand for large loan restructuring may open, leading to abuse of the policy and threatening the solvency of the banking system.”

For restructuring a loan below Tk 1,000 crore, a borrower must make down payment of at least 2 percent of the loan. If the amount is more than Tk 1,000 crore, the down payment will be one percent of the loan.

If a borrower fails to repay two instalments consecutively, he will forfeit the facility, and his fate will be decided in line with the bankruptcy law.

Though interest rate on the restructured loan would be fixed by the bank, it has to be more than the aggregate amount of the bank’s cost of funds and one percent interest rate.

Under the new framework, if a borrower has multiple loans with more than one bank, the banks concerned may approach the BB separately or together for its consent to loan restructuring.

The banks will have to publish details of the restructured loans in their annual reports.

According to the existing policy, a borrower can have his loans rescheduled thrice for a maximum of eight years. To get the facility, he must make a down payment of 10 percent of the loan for the first time, 15 percent for the second time and 30 percent for the third time.

He has to pay interest in line with market rate of 13-14 percent.

The need for a new policy to restructure large loans came to the fore after Beximco Group appealed to the central bank for rescheduling its loans of Tk 5,269 crore.

The conglomerate sought a lengthy duration to repay the loans, along with relaxed conditions and low interest rates.