Bangladesh Bank (BB) has recently moved to formulate a guideline for realisation of non-performing loans (NPLs) in the banking sector and make amendment to relevant laws.
During a recent tripartite meeting held at its head-office, the central bank has asked Bangladesh International Arbitration Centre (BIAC) and Association of Bankers Bangladesh (ABB) to draft the guideline.
Chaired by BB Deputy Governor Abu Hena Mohd Razee Hassan, the meeting had aimed at finding ways to strengthen Alternative Dispute Resolution (ADR) system to help settle a large number of loan disputes.
Noting that ADR is becoming a process requiring immediate attention from the banking sector, the BB deputy governor emphasized strengthening ADR to settle the NPL related disputes.
Mr. Hassan also mentioned that the central bank is willing to provide required support to expedite ADR process and make it more effective.
He also noted that BB has already encouraged all scheduled banks to opt for ADR at BIAC through an advisory letter on April 19, 2016.
The deputy governor also asked ABB and BIAC to prepare the draft guideline jointly. The draft will be considered by BB for circulation.
BIAC CEO Muhammad A. (Rumee) Ali, highlighting the relevant laws or regulations, like -- sections 22-25 of Artha Rin Adalat Ain 2003 (as amended in 2010), sections 89A and 89B of Code of Civil Procedure 1908 (as amended in 2012) and Arbitration Act 2001, said these laws or regulations have limitations.
"Not every defaulter is a wilful defaulter, and the reforms should give them an opportunity to settle any dispute through ADR," Mr Ali said.
He also opined that courts should take into cognizance the pre-litigation mediation and arbitration.
Noting that mediation hearing is often not effective due to limitations imposed on representative attending the process, he urged the banks to empower their representatives attending mediation with decision-making authority.
He also urged ABB to intensify efforts in this area by referring cases to ADR in order to make an amicable and expeditious settlement.
ABB Chairman Syed Mahbubur Rahman, during the meeting, noted that ADR works better for disputes involving small amounts, such as - small and medium enterprise (SME) and retails loans, rather than disputes involving large amounts.
"The volume of cases involving SMEs and retail sector is substantially high, and the propensity to default wilfully in this group is higher," he added.
ABB Vice Chairman Sohail R K Hussain opined that legal amendments to Artha Rin Adalat Ain should include mandatory mediation for SME and retail sector loans.
"A threshold of up to Tk 250 million should be included in all loan contracts, while the time limit should be 60 days and facilitated under an institution like BIAC," he added.
