This part of the manual has the reference to BRPD circular no. 16 dated December 06, 1998. As per the circular the bank has to conduct the loan classification activities on quarterly basis. The detailed information concerning classification, provisioning and Interest Suspense Account will be required to be submitted to Bangladesh Bank within 30 days from the date of reference.  

Basts for Classification :  

Objective Criteria: All loans and advances will be divided in four categories; (a) Continuous Loan,

(b) Demand Loan;

(c) Fixed Term Loan; and

(d) Short-term Agricultural and Micro-Credit.  

(a) Continuous Loan: The Loan, which has no particular repayment schedule, but contains date of expiry, credit limit etc. will be termed as Continuous Loan e.g., CC, OD etc.

Basis a/Classification:  Irregular: Next day after the date of expiry, if not adjusted/renewed at expiry date

Substandard: Un recovered for more than 3 months but less than 6 months.

Doubtful: Un recovered for more than 6 months but less than 12 months.

Bad/Loss: Un recovered for more than 12 months.  

(b) Demand Loan: The loan, which is considered repayable only after it is claimed by the banks, will be termed as Demand Loan. If contingent or any other liability is converted to Compulsory Loan and Forced Loan then it will be termed as Demand Loan e.g. Forced LIM, PAD, FBP, IBP etc.   Basis of Classification. Substandard: Un recovered for more than 3 months but less than 6 months. Doubtful: Un recovered for more than 6 months but less than 12 months. Bad/Loss: Un recovered for more than 12 months.  

(c) Fixed Term Loan: The loan, which is repayable within a particular period of fane as per repayment schedule, will be termed as fixed term loan.

Basis a/Classification: If any installment is left un recovered within the scheduled date, the amount falling due on account of un recovered installment will be classified as “Overdue Installment”. (a)    Fixed Term Loan which is repayable within a maximum period of 5 years         

Standard: Overdue installment equals or exceeds the amount repayable within6 months.         

Doubtful: Overdue installment equals or exceeds the amount repayable within 12 months.        

Bad/Loss: Overdue installment equals or exceeds the amount repayable within 18 months.   (b)   Fixed Term Loan which is repayable after 5 years.         

Standard: Overdue installment equals or exceeds the amount repayable within 12 months.         

Doubtful: Overdue installment equals or exceeds the amount repayable within 18 months.         

Bad/Loss: Overdue installment equals or exceeds the amount repayable within 24 months.   If any fixed term loan is repayable in monthly installment then the amount of recoverable installment will be equal to the sum of 6 installments (monthly). Similarly, in case of quarterly repayable installment total amount repayable within 6 months will be equal to the amount of the total of 2 quarterly installments.  

(d) Short-term Agricultural and Micro-credit : Short-term Credit will include credit extended to Agricultural sector and it is repayable within a period not exceeding 12 months. The short Term Micro-Credit will be that which will not exceed an amount of Tk. 10,000.00 and will be repayable within a period not exceeding 12 months.  

Irregular: If not recovered within the scheduled date as per contract of the credit.

Substandard: After exceeding 12 months as irregular credit

Doubtful: After exceeding 36 months as irregular

Bad/Loss: Overdue installment equals or exceeds the amount repayable within 60 months.

Qualitative Judgment :

If the recovery of the credit becomes uncertain resulting from change of circumstances under which credit was extended or the borrower sustains loss of capital or the value of security decrease or any advance situation arises then the credit will be classified on the basis of Qualitative Judgment. Besides, if the credit is extended without any logical basis or the credit is frequently rescheduled or the rules of rescheduling are violated or the trends of exceeding credit limit observed frequently or a suit is filed for recover of the credit is extended without the approval of the competent authority, then the loan will be classified on the basis of Qualitative judgment. Under this judgment the loans will be classified as under.  

Substandard : Due to reasons stated above or for any other reason if in spite of possible loss of any credit, there is any probability of changing the present situation through taking proper steps.  

Doubtful : Even after taking proper steps, if the full recovery is not ensured.

Bad/Loss :  If the probability of recovery becomes totally nil. If any improvement achieved in the accounts classified it will again be declassified. However, the credit once classified by inspection team of Bangladesh Bank, that will be treated as final classification and before any subsequent inspection is conducted by Bangladesh Bank or without prior approval of Bangladesh Bank the credit will not attain any merit of declassification.

Accounting Procedure of Interest of Classified Loan:

Sub-standard or Doubtful  :     Interest will be imposed on that credit account but such interest will not be transferred to the Income Account. Instead the interest will be kept in Interest Suspense.

Bad / Loss  :     Imposition of interest on Bad/Loss account will be suspended. If any suit is required to recover such credit, the suit will be filed on total amount of principal included interest calculated upto the period before the suit is filed. Such interest will be kept on interest suspense. In case of any special reason if interest is imposed on Bad/Loss account then such interest will be reserved on suspense account.   If any classified loan or part thereof is recovered i.e. actual deposit on account of recovery is Made in the credit account, then recovery of non-imposed as well as imposed interest will be made first from such deposit. Then original loan will be adjusted.  

Reservation of Provision  Provision for reserve will be kept at the following scale : Sub-standard    : 20% Doubtful          : 50% Bad/Loss          : 100%

After adjustment of Interest Suspense and value of Eligible Securities from outstanding balance of classified credit-the reservation of provisions will be kept on the calculated balance. General provision will be kept at the rate of 1% on unclassified loans.

Eligible Securities as stated above will include the following securities : Security in respect of lien against loan : 100% Security in respect of gold or gold ornaments kept in the bank as per present market value : 100% Security against value of Govt. Bond/ Sanchaya patra under lien : 100% Guarantee made by the Govt. or Bangladesh Bank : 100% Market value of easily marketable goods preserved under the custody of Bank: 50% Market value of the Mortgaged Land & Buildings : Maximum 50%

In respect of Short Term Agricultural Loan and Micro-Credit, the Reservation of provision will be made as under :

• • Credit other than Bad Loan (i.e. Doubtful, Sub-Standard, Irregular and Regular) = 5%
  • And in case of Bad Loan = 100%