On 12th April, 2020, the Bangladesh Bank issued guidelines relating to the Tk. 30,000 Crore fund forming part of the Tk. 72,500 Crore stimulus package earlier announced by the government. Unlike the previously announced Tk. 5000 Cr package, which was a fund to be disbursed as loans to pay worker’s wages, the working capital package is to go towards subsidising interest rates of working capital loans taken under the package. Also unlike the previous Tk. 5000 Cr package, the loan is to be given from the bank’s own funds while the government would subsidise half of the interest payments on behalf of the borrowers.
Purpose of providing “Working Capital loan/investment under Stimulus Package”
- To support affected business to overcome the probable financial impact caused due to the Corona virus (COVID-19). The government will subsidize part of the interest of the working capital loan provided that the borrower pays back its part of the instalment on time.
Loan/investment limit and duration
- Considering the financial stability until December 2019 and probable need of loan/investment, each bank will set a limit under this package which is to be treated as the initial loan/investment limit of the concerned bank. The bank will regulate its loan/investment activities taking into account the said limit. The banks are required to notify the limit to Banking Regulation and Policy Department of Bangladesh Bank since the amount of loan/investment of Working Capital under Stimulus Package is fixed.
- The loan/investment made under this package shall be consistent with the working capital stability data as of 31 December 2019 in respect to different sub-sectors of the industries and service sector.
- The duration of this package will be 3 (Three) years. However, for each borrower, the government will provide subsidy upto a year under this package.
Qualifications to receive the loan/investment of the Working Capital under Stimulus Package
- Only companies (except CMSME) in the industries and service sector affected by the Corona virus (COVID-19) will be eligible for loan/investment under this package.
- Existing loan/investment defaulters will not be eligible to obtain loan/investment under this package.
- Companies whose loan/investments have been rescheduled thrice already will not be eligible to receive any loan/investment under this package.
- Companies which did not take loans/investments till now or companies which have taken the same is required to obtain at least a marginal credit rating in line with the guidelines on Internal Credit Risk Rating System for Banks (ICRRS).
Use of the loan/investment
- The loan/investment under this package can only be used for management of day to day business.
- The loan/investment cannot be used to pay back existing loans.
- This loan/investment cannot be used for any new or expansion of business
Limit and duration of the loan/investment in service and industries sector
- The affected companies of the industries and service sector which already have loans with banks will receive a maximum 30 percent of their existing approved loan limit under this package.
- New borrower companies of the industrial and services sectors will receive a maximum of 30 percent of the loan limit which is fixed for the respective bank under this package.
- The loan/investment under this package will be deemed to be a regular loan/investment. It will be termed as “Working Capital under Stimulus Package”. The duration of the loan/investment under this package will be 1 (one) year. The loan facilities cannot be extended but banks can extend them based on the borrower company’s good track record. In this case, borrowers will still only receive the subsidy on the interest from the government for one year.
Interest/Profit Rate of the loan/investment
- The interest/profit of this loan/investment will be maximum 9 percent. 4.5 percent will be paid by the borrower and the rest 4.5 percent will be subsidized by Bangladesh Bank to the respective scheduled bank. In this case, a single borrower company will be entitled for the subsidy for only a year.
- The borrower company will not be liable for the 4.5 percent interest which is to be paid as subsidy from the government. However, if the borrower defaults in paying back its loan instalments on time, it will be liable for the whole 9 percent interest.
Written and compiled by Saqeb Mahbub, Partner and Wahid Sadiq Khan, Associate