Defaulted Loan Vs Classified Loan

⟳ UPDATED — March 2026 | BRPD Circular No. 15/2024 (Effective 01 April 2025)

Defaulted Loan vs Classified Loan

⚠ Important Regulatory Update: This post has been fully updated to reflect BRPD Circular No. 15, dated 27 November 2024, issued by Bangladesh Bank — the current Master Circular on Loan Classification and Provisioning. It supersedes BRPD Circular No. 14/2012 and all subsequent modifications. Effective from 01 April 2025.

প্রথমেই বলে নেই খেলাপী ঋণ বিষয়টি কেন গুরুত্ত্বপূর্ণ। ব্যাংক কোম্পানী আইন, ১৯৯১ এর ২৭ ক ক (৩) ধারা অনুযায়ী কোন খেলাপী ঋণ গ্রহীতার অনুকূলে কোন ব্যাংক-কোম্পানী বা আর্থিক প্রতিষ্ঠান কোনরূপ ঋণ সুবিধা প্রদান করিবে না। অর্থাৎ যদি কোন ঋণ খেলাপীকে ঋণ সুবিধা (ফান্ডেড বা নন-ফান্ডেড) প্রদান করা হয়, তাহলে তা সরাসরি আইনের বরখেলাপ হবে। এবং এ বিষয়টি পরবর্তীতে উৎঘাটিত হলে সংশিষ্ট ক্রেডিট অফিসারকে অনেক চড়া মূল্য দিতে হবে।

Legal Definition of a Defaulted Loan Borrower

ব্যাংক কোম্পানী আইন, ১৯৯১ এর ৫ গ গ ধারা অনুযায়ী "খেলাপী ঋণ গ্রহীতা" অর্থ কোন দেনাদার ব্যক্তি বা প্রতিষ্ঠান বা কোম্পানী যাহার নিজের বা স্বার্থ সংশ্লিষ্ট প্রতিষ্ঠানের অনুকূলে প্রদত্ত অগ্রীম, ঋণ বা অন্য কোন আর্থিক সুবিধা বা উহার অংশ বা উহার উপর অর্জিত সুদ বা উহার মুনাফা বাংলাদেশ ব্যাংক কর্তৃক জারীকৃত সংজ্ঞা অনুযায়ী মেয়াদোত্তীর্ণ হওয়ার ৬ (ছয়) মাস অতিবাহিত হইয়াছে।

আইনে খেলাপী ঋণ গ্রহীতার সংজ্ঞায় উল্লেখযোগ্য হলো — "বাংলাদেশ ব্যাংক কর্তৃক জারীকৃত সংজ্ঞা অনুযায়ী মেয়াদোত্তীর্ণ হওয়ার ৬ (ছয়) মাস অতিবাহিত হইয়াছে।" তাই মেয়াদোত্তীর্ণ (Past Due/Overdue) কবে থেকে গণনা হবে সেটি নির্ধারণ করে বাংলাদেশ ব্যাংকের সার্কুলার।

Current Framework: BRPD Circular No. 15/2024

Source: Bangladesh Bank, Banking Regulation & Policy Department | BRPD Circular No. 15 | 27 November 2024 | Effective: 01 April 2025

Categories of Loans and Advances

All loans and advances are grouped into four categories for classification purposes:

Category	Description	Examples
Continuous Loan	Accounts with transactions within a limit, having an expiry date for full adjustment	Cash Credit (CC), Overdraft (OD)
Demand Loan	Loans repayable on demand; also includes forced loans (contingent liabilities turned loan without prior approval)	Post Import Financing (PAD, LIM, LTR), Foreign Bill Purchased, Inland Bill Purchased
Fixed Term Loan	Loans repayable within a specific time under a fixed repayment schedule	Term Loans, Project Finance
Short-term Agricultural Credit	Short-term agri credits repayable within 12 months as per ACD of Bangladesh Bank	Crop loans, Seasonal agri credit

Definition of Past Due / Overdue

New Rule (BRPD 15/2024): All loans will be treated as past due/overdue from the following day of the expiry date (or creation of forced loan, or due date if not repaid/renewed).

Exception for Fixed Term Loan: If any installment(s) is not repaid within the fixed expiry/due date, the unpaid amount is treated as past due/overdue from the following day of the expiry/due date itself — not after 6 months. This is a major change from previous circular (BRPD 03/2019).

New 7-Tier Classification System

BRPD Circular No. 15/2024 introduces a 7-tier classification, replacing the old 5-category system. The new categories under Objective Criteria are:

CL Category	Status	Period of Past Due / Overdue	Provision Rate
STD-0	Unclassified	No past due	1% on outstanding
STD-1	Unclassified	≥ 1 day but < 1 month	1% on outstanding
STD-2	Unclassified	≥ 1 month but < 2 months	1% on outstanding
SMA	Unclassified	≥ 2 months but < 3 months	5% on outstanding
SS (Sub-Standard)	Classified / NPL	≥ 3 months but < 6 months	20% of base
DF (Doubtful)	Classified / NPL	≥ 6 months but < 12 months	50% of base
B/L (Bad/Loss)	Classified / NPL	≥ 12 months	100% of base

✔ Key Rule: SS, DF and B/L are classified loans = Non-Performing Loans (NPL). STD-0, STD-1, STD-2 and SMA are unclassified loans.

Classified Loan vs Defaulted Loan — The Critical Distinction

এখানেই মূল পার্থক্য। একটি ঋণ শ্রেণীকৃত (Classified) হওয়া মানেই খেলাপী (Defaulted) নয়।

Continuous Loan & Demand Loan

Scenario	Position
Expiry Date এর পরের দিন থেকে	Past Due শুরু
Past Due ≥ 3 months but < 6 months	SS (Classified, but NOT Defaulted)
Past Due ≥ 6 months	Classified + DEFAULTED (Bank Company Act, Section 5GaGa)

Important: A portion of SS loans will be reported as defaulted loans (per Clause 6(c)(ii) of BRPD 15/2024). For Continuous and Demand Loans: SS loans with 3 months to 5 months 29 days of past due = Classified but NOT Defaulted. Once past due reaches 6 months → Classified AND Defaulted.

Fixed Term Loan (Updated — Major Change)

Under BRPD Circular No. 03/2019 (now superseded), Fixed Term Loans had a 6-month grace before being treated as "overdue." Under BRPD Circular No. 15/2024:

Scenario	Position (BRPD 15/2024 — from 01 Apr 2025)
Installment due but unpaid	Past due from the following day of installment due date
Past Due ≥ 3 months but < 6 months	SS (Classified, but NOT Defaulted)
Past Due ≥ 6 months but < 12 months	DF — Classified AND Defaulted
Past Due ≥ 12 months	B/L — Classified + Defaulted

⚠ Key Change for Fixed Term Loan: Under the old BRPD 03/2019, Fixed Term Loans were treated as overdue only after 6 months from the installment due date, meaning default could only occur from 12 months. Under BRPD 15/2024 (effective April 2025), past due starts the very next day of the due date, making the classification and default timelines faster by 6 months. This stricter standard aligns Bangladesh with international best practices (IFRS 9 / Basel III).

Qualitative Judgment — Classification Beyond Numbers

Beyond objective criteria (days past due), banks can also classify loans based on Qualitative Judgment — perceived risk factors even if no past due exists. BRPD 15/2024 provides detailed indicative factors for each tier:

Classify as	Obligor-Side Triggers (examples)
SMA	Occasional overdrawn, below-average profitability, barely acceptable liquidity
SS	Recurrent overdrawn, low turnover, weak management, doubts about management integrity
DF	Permanent overdrawn, operational losses, illiquidity, very poor/hostile management
B/L	Loans to finance operational losses, money laundering/fraud/embezzlement, no repayment source except liquidation

Final Classification Rule: Both objective criteria AND qualitative judgment assessments are done. The worse (more severe) result is the final classification.

Interest Accounting of Classified Loans

Classification	Interest Treatment
SS and DF	Interest credited to Interest Suspense Account (not Income Account)
B/L	Interest charging ceases; any interest charged goes to Interest Suspense
Rescheduled Loans	Unrealized interest → Interest Suspense Account

Provision Rates — BRPD Circular No. 15/2024

Category	Type of Provision	Rate
STD-0, STD-1, STD-2	General Provision	1% of loan outstanding
SMA	General Provision	5% of loan outstanding
SS	Specific Provision	20% of base for provision
DF	Specific Provision	50% of base for provision
B/L	Specific Provision	100% of base for provision

Eligible Collateral for Base Calculation (select examples): 100% of deposit under lien; 100% of government bond/savings certificate under lien; 100% of government/Bangladesh Bank/AAA-rated MDB guarantee; 100% of market value of gold pledged; 50% of marketable commodities under bank's control; up to 50% of land and building; 50% of average 6-month stock market value (for listed shares).

Minimum 15% Rule: For most collateral types, specific provision must be maintained on the greater of: (i) outstanding minus interest suspense minus collateral value, OR (ii) 15% of the outstanding balance. This floor protects against over-reliance on collateral.

NPL Situation in Bangladesh — 2025 Update

Understanding the context is important for any banking professional:

Period	NPL Amount (Tk Lakh Crore)	% of Total Loans
December 2023	1.45	~9.0%
June 2024	2.11	12.56%
December 2024	3.46	20.20%
March 2025	4.20	24.13%
June 2025	6.08	~34.6%
September 2025	6.44	35.73%

Context: Bangladesh now ranks highest in Asia in terms of NPL ratio (ADB Report 2023 data; situation worsened in 2025). Key causes: stricter classification post-BRPD 15/2024, uncovering of previously concealed bad loans from the Awami League era, defaults by large conglomerates (S Alam Group, Beximco Group), and alignment with international standards. By September 2025, state-owned banks had an NPL rate of ~44%, private banks ~32.9%.

Reporting Requirements

• Classification on quarterly basis (CL-1 to CL-5 forms)
• CL-1 summary to be uploaded in Bangladesh Bank's Enterprise Data Warehouse (EDW)
• CL-1 submitted within 15th of the next month after quarter-end
• Classification status of each loan reported to CIB (Credit Information Bureau)
• Non-compliance may attract penalty
• Islamic banks must also follow BRPD 15/2024 for their investments
• Off-Balance Sheet provisioning: follow BRPD Circular No. 06/2023

Declassification (Improvement in CL)

• Objective basis: Move to better category upon payment of past due amount
• Qualitative basis (bank classified): MD/CEO can move from B/L → DF or DF → SS with justification; Board of Directors must approve SS → SMA/STD
• Bangladesh Bank inspection classified: Cannot be declassified without BB's consent

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📋 Quick Summary Table — Exam Ready

Concept	Key Fact
Governing Circular	BRPD Circular No. 15/2024 (dated 27 Nov 2024, effective 01 Apr 2025)
Supersedes	BRPD Circular No. 14/2012 and all its modifications
Loan Categories	4: Continuous, Demand, Fixed Term, Short-term Agricultural Credit
CL Tiers	7: STD-0, STD-1, STD-2, SMA, SS, DF, B/L
NPL = Classified	SS + DF + B/L
Unclassified	STD-0 + STD-1 + STD-2 + SMA
Defaulted Loan (Law)	Past Due ≥ 6 months (Bank Company Act, Sec. 5GaGa)
Past Due starts for Continuous/Demand	Next day after Expiry Date
Past Due starts for Fixed Term	Next day after installment due date (changed — no 6-month grace)
SS but NOT Defaulted	Past Due 3 months to 5 months 29 days (Continuous/Demand/FTL)
SMA Provision	5% (new — was no separate provision under old circular)
SS Provision	20% of base
DF Provision	50% of base
B/L Provision	100% of base
Minimum base for provision	Greater of: (outstanding − IS − collateral) OR 15% of outstanding
Interest (SS & DF)	→ Interest Suspense Account
Interest (B/L)	Charging ceases
Classification frequency	Quarterly
CL-1 submission deadline	15th of month after quarter-end
IFRS 9 / ECL target	Bangladesh Bank plans full IFRS 9 ECL methodology by 2027
Bangladesh NPL (Sep 2025)	Tk 6.44 lakh crore = 35.73% of total loans (highest in 25 years)

🧠 Mnemonic to Remember the 7 CL Tiers: "S1 S2 SMA — SS DF BL"

Small problem? → STD-0 (Clean)

Slight slip (1 day–1 month) → STD-1

Same slip (1–2 months) → STD-2

Mind the warning (2–3 months) → SMA — 5% provision kicks in here!

━━━━━━━━━━━━ NPL Zone ━━━━━━━━━━━━

Seriously behind (3–6 months) → SS — 20%

Doubtful recovery (6–12 months) → DF — 50% + Defaulted!

Bad, write it off (12+ months) → B/L — 100%

📌 Remember: Defaulted = Past Due ≥ 6 months (Bank Company Act). SS (3-6 months) is Classified but NOT Defaulted!

References: BRPD Circular No. 15/2024 (27 November 2024) — Bangladesh Bank; Bank Company Act, 1991 (Sec. 5GaGa, 27KaKa); BRPD Circular No. 06/2023 (Off-Balance Sheet); Bangladesh Bank Quarterly Reports (2024–2025); ADB Asia-Pacific Financial Indicators Report. | Last updated: March 2026.