Investment Risk Grading

Investment Risk Grading / ICRRS – Internal Credit Risk Rating System

📌 Last Updated: March 2026 — This post has been fully updated to reflect the latest Bangladesh Bank circulars including BRPD Circular No. 16/2018, BRPD Circular No. 12/2019, and subsequent amendments up to BRPD Circular Letter No. 02/2024 and BB's August 2025 relaxation directive. The old CRG/IRG system has been officially replaced.

Background: From CRG to ICRRS

Investment Risk Grading (IRG) was an earlier informal term used for assessing credit risk. It evolved into the formal Credit Risk Grading (CRG) system introduced in 2005 — a single-template model applied uniformly across all sectors. Recognising its limitations — especially its inability to capture sector-specific risk characteristics — Bangladesh Bank replaced CRG with the Internal Credit Risk Rating System (ICRRS).

BRPD Circular No. 16/2018 issued on 30 October 2018 introduced the ICRRS Guidelines. Banks were directed to implement ICRRS by 1 October 2019 (extended from the original July 2019 deadline by BRPD Circular No. 12/2019).

What is ICRRS?

ICRRS (Internal Credit Risk Rating System) is a fully automated, Excel-based credit risk scoring tool designed to assess a borrower's repayment capacity based on financial condition, industry/business characteristics, management quality, compliance behaviour, and relationship profile.

Unlike the old CRG (one template for all), ICRRS uses 20 different rating templates for 20 industries/sectors under four broad categories:

• A. Industry / Manufacturing
• B. Trade and Commerce
• C. Service
• D. Agro-based and Agro Processing

Applicability of ICRRS

ICRRS is applicable for all exposures (irrespective of amount), except the following:

Exempted Category	Threshold / Remarks
Consumer Loans	All consumer loans exempted
Small Enterprises (General)	Total loan exposure < BDT 50 lac
Small Enterprises (Manufacturing)	Total loan exposure < BDT 1 crore
Short-Term Agricultural Loans	Fully exempted
Micro-Credit	Fully exempted
Lending to Banks, NBFIs & Insurance Cos.	Fully exempted
Micro Finance Institutions, Merchant Banks, Stock Brokers, NGOs	Exempted by subsequent BB circular (2021); banks to use their own risk tools

All credit proposals — whether New, Renewal, or Enhancement — must go through the ICRR process.

Score Structure: Quantitative vs Qualitative

Component	Weight	Who Performs
Quantitative Indicators	60%	Credit Officer / Analyst
Qualitative Indicators	40%	Relationship Manager / Branch Manager

Note: Previously under CRG, the split was 50%-50%. ICRRS gives more weight to financial data (quantitative).

Quantitative Indicators (60% Total)

#	Category	Weight
1	Leverage	10%
2	Liquidity	10%
3	Profitability	10%
4	Coverage	15%
5	Operational Efficiency	10%
6	Earning Quality	5%
Total (Quantitative)		60%

Qualitative Indicators (40% Total)

#	Category	Weight
1	Performance Behaviour	10%
2	Business and Industry Risk	7%
3	Management Risk	7%
4	Security Risk	11%
5	Relationship Risk	3%
6	Compliance Risk	2%
Total (Qualitative)		40%

ICRR Rating Scale (Original Guidelines — 2018/2019)

Rating	Aggregate Score	Colour Code	Action
Excellent	≥ 80%	🟢 Green	Lend freely
Good	≥ 70% to < 80%	🔵 Blue	Lend freely
Marginal	≥ 60% to < 70%	🟡 Yellow	Caution; evaluate before lending/renewing
Unacceptable	< 60%	🔴 Red	No loan (exceptions: cash covered, Govt. guarantee, MDB guarantee, SOE)

⚠️ IMPORTANT UPDATE — Threshold Revisions (Post-2021 Relaxations):
Bangladesh Bank revised ICRR thresholds multiple times due to pandemic and economic stress:

• BRPD Circular Letter No. 14/2021 — Scale revised: Excellent ≥80% → ≥75%; Good ≥70% → ≥65%; Marginal ≥60% → ≥55%; Unacceptable <60% → <55%
• BRPD Circular No. 07/2022 — Marginal further lowered: ≥55% → ≥50%; Unacceptable: <55% → <50% (Excellent & Good unchanged)
• BRPD Circular Letter No. 02/2024 — Effective January 2024. Marginal tightened: ≥50% → ≥55%; Unacceptable: <50% → <55%. Current scale:
  Excellent ≥75% | Good ≥65% to <75% | Marginal ≥55% to <65% | Unacceptable <55%
• 19 August 2025 (BRPD Circular) — Bangladesh Bank relaxed ICRRS, allowing banks to approve/renew/adjust loans even for "Unacceptable" borrowers under strict conditions: enhanced due diligence, proper collateral assessment, strengthened monitoring, and board compliance required before disbursement. A separate quarterly list of such loans must be sent to the second division of BRPD and maintained for inspection/audit purposes.

Revised ICRR Rating Scale (Current — per BRPD Circular Letter No. 02/2024, effective January 2024)

Rating	Aggregate Score	Colour Code
Excellent	≥ 75%	🟢 Green
Good	≥ 65% to < 75%	🔵 Blue
Marginal	≥ 55% to < 65%	🟡 Yellow
Unacceptable	< 55%	🔴 Red

Key Rules and Management Action Triggers

• Excellent / Good: Loans can be sanctioned freely.
• Marginal: Bank must take cautionary measures; justify carefully before lending or renewing.
• Unacceptable: No loan shall be sanctioned unless —
  • Loan is 100% cash covered, OR
  • Fully guaranteed by the Government, OR
  • Fully guaranteed by Multilateral Development Banks (MDBs), OR
  • Loan is for a State-Owned Enterprise (SOE) / state-owned project
• Banks may renew/enhance existing loans for maximum 2 (two) times even if ICRR is "Unacceptable".
• If the quantitative score is less than 40% (per Version 2.0 update), the ICRR shall be "Unacceptable" regardless of qualitative score.
• If ICRR falls "Marginal" or "Unacceptable" for any individual risk criterion (among 16 quantitative and 18–20 qualitative), the Relationship Manager must justify risk mitigation in the loan proposal.
• For newly established companies with no meaningful financial history, rating may be based on projected financial statements.
• For proprietorship / partnership concerns where audited accounts are not mandatory, unaudited statements may be used with due diligence.

Frequency of ICRRS Assessment

ICRRS must be conducted at the time of:

• New loan sanctions
• Renewal of existing credit facilities
• Enhancement of credit limits

The ICRRS report must be retained in the loan file.

Capital Adequacy Context (Basel III)

Under the Basel III framework, a borrower with the worst ICRR performance carries a risk weight of 150% for capital adequacy purposes. Banks must maintain a minimum Capital to Risk-weighted Asset Ratio (CRAR) of 10% under Basel III.

⚠️ Bangladesh Banking Sector — Capital Crisis 2024-25:
As of end-2024, the banking sector's CRAR dropped sharply to 3.08% — far below the 10% Basel III minimum. 19 banks (including 6 state-owned) face a combined capital shortfall of approximately BDT 1,71,700 crore. Non-performing loans surged to BDT 3,45,765 crore. Private commercial banks remain healthier with CRAR of ~10.98% while foreign banks stand at 42.09%.

CRG vs ICRRS — Quick Comparison

Feature	Old CRG (2005)	New ICRRS (2018–Present)
Introduced	2005	BRPD Circular No. 16, October 2018
Templates	1 (for all sectors)	20 (sector-specific)
Quantitative Weight	50%	60%
Qualitative Weight	50%	40%
Rating Categories	Multiple (varied)	4: Excellent, Good, Marginal, Unacceptable
Automation	Manual/semi-automated	Fully automated (Excel-based)
Sector Differentiation	No	Yes (18–20 industries under 4 sectors)
Status	Superseded / Abolished	Currently in force (with amendments)

ICRR Score Scale — Full Evolution at a Glance

Rating	Original 2018/19 (BRPD No.16/2018)	After 2021 (BRPD CL No.14/2021)	After 2022 (BRPD No.07/2022)	Current (Jan 2024) (BRPD CL No.02/2024)
Excellent	≥ 80%	≥ 75%	≥ 75%	≥ 75%
Good	≥ 70% to <80%	≥ 65% to <75%	≥ 65% to <75%	≥ 65% to <75%
Marginal	≥ 60% to <70%	≥ 55% to <65%	≥ 50% to <65%	≥ 55% to <65%
Unacceptable	< 60%	< 55%	< 50%	< 55%

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📋 Quick Revision Summary Table with Mnemonic

Item	Key Fact
Governing Circular	BRPD Circular No. 16, 30 Oct 2018
Effective Date	1 October 2019 (BRPD Circular No. 12/2019)
Replaces	CRG (Credit Risk Grading) of 2005
No. of Templates	20 (sector-specific)
Sectors Covered	Industry, Trade & Commerce, Service, Agro-based (4 sectors)
Quantitative Weight	60%
Qualitative Weight	40%
Quantitative Sub-Criteria	6: Leverage, Liquidity, Profitability, Coverage, Operational Efficiency, Earning Quality
Qualitative Sub-Criteria	6: Performance Behaviour, Business/Industry Risk, Management Risk, Security Risk, Relationship Risk, Compliance Risk
Original Excellent Score	≥ 80%
Current Excellent Score (post-2024)	≥ 75%
Current Marginal Score (post-2024)	≥ 55% to < 65%
Current Unacceptable Score (post-2024)	< 55%
Renewal despite Unacceptable	Max 2 times
Risk Weight (worst performer)	150% (Basel III)
Quantitative score trigger for auto-Unacceptable	< 40% in quantitative part
19 Aug 2025 Update	BB relaxed ICRRS — "Unacceptable" borrowers may now access credit under strict conditions (enhanced due diligence, collateral assessment, board compliance, quarterly report to BRPD)

🧠 Mnemonic to Remember the 6 Quantitative Indicators: "LL PC OE"
Leverage · Liquidity · Profitability · Coverage · Operational Efficiency · Earning Quality

Story: "A LL.B lawyer runs a PC repair shop with excellent Operational Efficiency and solid Earning Quality" — LL-PC-OE

🧠 Mnemonic for Qualitative Indicators: "PB BM SCR"
Performance Behaviour · Business & Industry Risk · Management Risk · Security Risk · Compliance Risk · Relationship Risk

Story: "A PB (Private Banker) sees BM (Branch Manager) worry about SCR (Security-Compliance-Relationship)"

🧠 Score Scale Memory — "75-65-50-X" (Current after 2024 revision):
Excellent ≥75 | Good ≥65 | Marginal ≥55 | Unacceptable <55
"75 Gold, 65 Good, 55 Shaky, Below 55 — No Way!"

Frequently Asked Questions (Exam-Ready)

Question	Answer
What does ICRRS stand for?	Internal Credit Risk Rating System
Which circular introduced ICRRS?	BRPD Circular No. 16, dated 30 October 2018
When was ICRRS made mandatory?	1 October 2019
What did ICRRS replace?	Credit Risk Grading (CRG) system of 2005
How many templates does ICRRS have?	20 templates for 20 industry/sectors
What are the 4 sectors of ICRRS?	Industry, Trade & Commerce, Service, Agro-based & Agro Processing
What is the quantitative weight in ICRRS?	60%
Can a bank lend to a "Marginal" borrower?	Yes, but with caution and strong justification
Can a bank lend to an "Unacceptable" borrower?	Only if 100% cash covered, or Govt./MDB guaranteed, or SOE/state project
How many times can an "Unacceptable" borrower renew?	Maximum 2 times
What is the risk weight for the worst ICRR performer?	150% (under Basel III)
Who fills the qualitative part of ICRRS?	Relationship Manager / Branch Manager
What if quantitative score is less than 40%?	ICRR shall automatically be "Unacceptable"
What is the current CRAR of Bangladesh's banking sector?	3.08% (end of 2024) — below 10% Basel III minimum
What did BB do on 19 August 2025 regarding ICRRS?	Relaxed ICRRS rules — "Unacceptable" borrowers may now access credit under strict conditions: enhanced due diligence, collateral assessment, board compliance, and quarterly report to BRPD's 2nd Division

References: Bangladesh Bank BRPD Circular No. 16/2018; BRPD Circular No. 12/2019 (ICRRS Guidelines Version 2.0); BRPD Circular Letter No. 14/2021; BRPD Circular No. 07/2022; BRPD Circular Letter No. 02/2024; Bangladesh Bank BRPD Circular dated 19 August 2025 (ICRRS Relaxation); Bangladesh Economic Review 2024 (MoF); The Daily Star, New Age, UNB, The Business Standard (various 2022–2025).

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SME and Microfinance

Criteria of CMSMEs updated as per SMESPD Circular No. 01 dated 17 March 2025 (Master Circular — Bangladesh Bank) UPDATED 2025

CMSME (Cottage, Micro, Small & Medium Enterprise) plays a vital role in market creation, employment, and the national economy of Bangladesh. It accounts for approximately 45% of manufacturing value addition, 80% of industrial employment, 90% of total industrial units, and contributes nearly 25% of the country's GDP. As per the Economic Census 2024 (BBS), there are now 11.8 million economic units in Bangladesh — up from 7.8 million in 2013 — of which more than 56% are informal enterprises.

1. SME Sectors

Manufacturing: Food processing, agro-based industry, tannery, garments, light engineering, leather goods, electronics, handicrafts

Trading: All goods including import and export sectors

Service: Transport, telecommunication, hotel, information technology, health, education

Note: Under SMESPD Circular No. 01/2025, service industries have been redefined in line with the National Industrial Policy 2022.

2. Eligibility for CMSME Investment / Financing

Sole proprietorship, Partnership, Private Ltd. company — with required infrastructure, manpower, cash flow, and marketability of products/goods. Informal/marginal enterprises are now formally recognized for the first time under the 2025 Master Circular.

3. CMSME Classification Criteria NEW 2025

Source: SMESPD Circular No. 01, dated 17 March 2025, Bangladesh Bank. If an enterprise falls into different tiers based on criteria below, the higher tier prevails.

Enterprise Type	Sub-Sector	Fixed Asset Value (excl. land & building)	Number of Employees	Annual Turnover (Service/Trading only)
Non-Institutional / Marginal	Mfg / Service / Trading	Less than Tk. 5 lac	Maximum 10	N/A
Cottage	Manufacturing	Less than Tk. 10 lac	Maximum 15	N/A
Micro	Manufacturing	Tk. 10 lac to less than Tk. 75 lac	Maximum 25	N/A
	Service	Less than Tk. 10 lac	Maximum 15	N/A
	Trading	Max. Tk. 15 lac	Maximum 10	Max. Tk. 2 crore
Small	Manufacturing	Tk. 75 lac to less than Tk. 15 crore	26 to 120	N/A
	Service	Tk. 10 lac to less than Tk. 2 crore	16 to 50	N/A
	Trading	Tk. 15 lac to less than Tk. 2 crore	11 to 30	Tk. 2 cr. to less than Tk. 20 cr.
Medium	Manufacturing	Tk. 15 crore to Tk. 50 crore	121–300 (RMG/labour-intensive: max. 1,000)	N/A
	Service	Tk. 2 crore to Tk. 30 crore	51–120	N/A
	Trading	Tk. 2 crore to less than Tk. 15 crore	31–100	Tk. 20 cr. to less than Tk. 50 cr.

Tiebreaker Rule: If an enterprise falls under different tiers based on different criteria (e.g., fixed assets suggest "Micro" but employees suggest "Small"), the higher tier shall prevail.

4. CMSME Loan / Investment Ceilings NEW 2025

Source: SMESPD Circular No. 01, dated 17 March 2025. Total funded loan/investment across all banks and FIs for a single enterprise cannot exceed these limits.

Enterprise Type	Manufacturing (max. BDT)	Service (max. BDT)	Trading (max. BDT)
Informal / Marginal	5 lac	5 lac	5 lac
Cottage	20 lac	—	—
Micro	2 crore	50 lac	75 lac
Small	25 crore	8 crore	8 crore
Medium	100 crore	75 crore	10 crore

5. CMSME Portfolio Targets for Banks & FIs NEW 2025

Target	Details
Overall CMSME credit disbursement	25% of total loan portfolio by end-2025; 27% by 2029
Cluster financing target	Minimum 10% of CMSME portfolio
Manufacturing sector	Minimum 40% of CMSME portfolio
Service sector	Minimum 25% of CMSME portfolio
Trading sector	Maximum 35% of CMSME portfolio
Women entrepreneurs	Minimum 15% of total CMSME lending; 1% cash incentive for timely repayment
Cottage, Micro & Small (CMS)	Minimum 50% of total CMSME portfolio

6. Women Entrepreneur — Definition & Special Facilities

Definition: A woman who is the owner of a proprietary firm, OR in a partnership/private limited company owns at least 51% share, is treated as a Women Entrepreneur.

Facility	Details
Collateral-free loan (personal guarantee)	Up to Tk. 25 lac against personal guarantee
Loan guarantee scheme (BB-backed)	Up to Tk. 50 lac with BB's Credit Guarantee Scheme (CGS)
Refinance fund for women	BB has a dedicated BDT 3,000 crore refinance scheme; PFI rate 0.5%, customer rate max 5%
Cash incentive	1% cash incentive to women entrepreneurs who repay CMSME loans on time; 1% to bank/FI also
ANANNYA (MBPLC product)	Women's Loan @ 5% p.a. up to Small Enterprise; Tk. 0.50 lac to Tk. 100 lac
Dedicated Desk	Women Entrepreneurs' Dedicated Desk (WEDU) in all branches of scheduled banks

7. Group-Based Financing NEW 2025

The SMESPD Circular No. 01/2025 introduces group-based loans for Cottage and Micro entrepreneurs, allowing 5–10 individuals to apply collectively. However, each member must submit a separate application supported by a CIB (Credit Information Bureau) report.

8. Key CMSME Facts & Figures — Bangladesh (2024–25)

Indicator	Figure	Source
Total economic units / MSMEs	11.8 million (2024); 7.8 million in 2013	BBS Economic Census 2024
SME contribution to GDP	~25% (BB Study Nov 2022: 24.45%)	Bangladesh Bank / BBS
Share of manufacturing value addition	~45%	Planning Division
Share of industrial employment	~80%	Planning Division
Share of total industrial units	~90%	Planning Division
Share of non-agricultural workforce	70–80% (ADB)	ADB Report
People employed in MSMEs	~24 million	Daily Star 2024
Export earnings contribution	75–80% of total export earnings	Planning Division
Informal MSMEs	More than 56% are informal	BBS Economic Census 2024
GDP growth rate (FY 2024–25)	3.49% (slowest in recent years)	Wikipedia / BBS 2025
Master Circular	SMESPD Circular No. 01, 17 March 2025	Bangladesh Bank (SMESPD)

9. MBPLC CMSME Loan Products (at a Glance)

Product Name	Purpose	Type
CHAKA	Business expansion, capital machinery & fixed assets	Term Loan
SAMRIDDHI	Working capital / stock maintenance	Continuous Loan
MOUSUMI	Seasonal cash flow needs	Short-term Seasonal
ANANNYA	Women Entrepreneurs — working capital & expansion	Term / Continuous
SANCHALAK	Performance-based mixed credit facility	Term + Continuous mix
UNMESH	Foreign trade finance (L/C, LTR, Time Loan)	Trade Finance
UDAYAN	Young entrepreneurs (age 21–35), seed capital	Term Loan
START UP	New technology-based business; 4% p.a. (SMESPD Circular No. 02/2025)	Term / Working Capital
CMSME Cluster	Min. 30 entrepreneurs; within 5 km radius	Cluster Financing

10. Microfinance — Key Notes

Microfinance refers to the provision of small-scale financial services — including microcredit, savings, and insurance — to low-income individuals and households who are excluded from the formal banking sector. In Bangladesh, microfinance is primarily channelled through:

• Microfinance Institutions (MFIs) — Grameen Bank, BRAC, ASA, Proshika, etc.
• Bangladesh Bank's own refinance schemes for MFIs (FID Circular No. 01/2020)
• Short-term Micro-Credit: Repayable within 12 months; amount determined by the Agricultural Credit Department of Bangladesh Bank

Important: Under SMESPD Circular No. 01/2025, Bangladesh Bank has barred refinancing support for CMSME loans routed through MFIs or peer organisations. MFIs retain their separate refinance windows (FID circulars).

11. Quick Q&A — Exam Ready

Q1. What is the current Master Circular for CMSME financing in Bangladesh?

SMESPD Circular No. 01, dated 17 March 2025, issued by Bangladesh Bank (SMESPD Department). It replaced the previous 2019 Master Circular (SMESPD Circular No. 02, dated 05 September 2019).

Q2. What is new in the 2025 CMSME Master Circular?

(i) Informal/Marginal enterprises formally recognized for the first time.
(ii) Group-based loans for Cottage and Micro entrepreneurs (5–10 members).
(iii) Annual turnover added as a classification criterion for Service and Trading.
(iv) Expanded loan ceilings — Medium Manufacturing raised to Tk. 100 crore.
(v) CMSME credit target set at 25% of total portfolio by 2025 and 27% by 2029.
(vi) New 10% cluster financing target introduced.
(vii) Finance Companies (FCs) included alongside Banks and NBFIs.

Q3. How is a Small Enterprise (Manufacturing) defined under the 2025 Circular?

Fixed assets (excl. land & building) of Tk. 75 lac to less than Tk. 15 crore AND/OR 26 to 120 employees. Maximum loan ceiling: Tk. 25 crore.

Q4. What are the maximum loan ceilings for a Medium Enterprise?

Manufacturing: Tk. 100 crore | Service: Tk. 75 crore | Trading: Tk. 10 crore.

Q5. Who is a Women Entrepreneur as per Bangladesh Bank policy?

A woman who is the sole proprietor, OR owns at least 51% share in a partnership/private limited company. Entitled to collateral-free loan up to Tk. 25 lac (personal guarantee) and BB's Credit Guarantee Scheme up to Tk. 50 lac.

Q6. What is the contribution of CMSME to the Bangladesh economy?

~25% of GDP; ~45% of manufacturing value addition; ~80% of industrial employment; ~90% of total industrial units; 70–80% of non-agricultural workforce; 75–80% of export earnings. Total 11.8 million economic units (BBS Economic Census 2024).

Q7. What is group-based financing under the 2025 CMSME Circular?

5–10 Cottage or Micro entrepreneurs can apply collectively for a loan. However, each member must submit a separate application along with an individual CIB report.

Q8. What is a Cottage Enterprise under the new circular?

A manufacturing enterprise with fixed assets (excl. land & building) of less than Tk. 10 lac and a maximum of 15 employees. Maximum loan ceiling: Tk. 20 lac.

12. Quick Summary & Mnemonic Tables

Classification Mnemonic — "I Can Make Some Money" (ICMSM)

🧠 Mnemonic: "I Can Make Some Money"

I = Informal/Marginal → Fixed Assets < Tk. 5 lac | Employees ≤ 10 | Loan: Tk. 5 lac
C = Cottage → Fixed Assets < Tk. 10 lac | Employees ≤ 15 | Loan: Tk. 20 lac
M = Micro → Fixed Assets Tk. 10L–75L (Mfg) | Employees ≤ 25 | Loan: Tk. 2 cr (Mfg)
S = Small → Fixed Assets Tk. 75L–15 cr (Mfg) | Employees 26–120 | Loan: Tk. 25 cr (Mfg)
M = Medium → Fixed Assets Tk. 15–50 cr (Mfg) | Employees 121–300 | Loan: Tk. 100 cr (Mfg)

Circular History — SME/CMSME Master Circulars

Circular	Date	Key Feature
SMESPD No. 01/2016	07 Jan 2016	Introduced Cottage & Micro in CMSME framework; women collateral-free up to Tk. 25 lac
SMESPD No. 02/2019	05 Sep 2019	Previous Master Circular — revised CMSME definition, sector-wise targets
SMESPD No. 01/2025	17 Mar 2025	Current Master Circular — Informal enterprises recognized, group loans, expanded ceilings, turnover criteria added, FCs included

Loan Ceiling Quick Reference (2025)

Type	Mfg Loan Max	Service Loan Max	Trading Loan Max
Marginal	5 lac	5 lac	5 lac
Cottage	20 lac	—	—
Micro	2 crore	50 lac	75 lac
Small	25 crore	8 crore	8 crore
Medium	100 crore	75 crore	10 crore

🧠 Loan Ceiling Mnemonic (Manufacturing): "Five Toes Walked Slowly, Hundred Miles"

Marginal = 5 lac | Cottage = 20 lac | Micro = 2 crore | Small = 25 crore | Medium = 100 crore

Last updated: March 2026 | Reference: SMESPD Circular No. 01 dated 17 March 2025; SMESPD Circular No. 02 dated 09 July 2025; BBS Economic Census 2024; Bangladesh Bank SMESPD Portal

Reschedule of Loan/ Investment

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Reschedule of Loan / Investment
Master Circular — Updated with Latest Bangladesh Bank Circulars (2024–2026)

📋 Authority: Bangladesh Bank (BRPD) 📅 Last Updated: March 2026 🏦 Context: Mercantile Bank PLC (MBPLC)

Authority: Bangladesh Bank BRPD | Current as of March 2026

Q: What is Loan Rescheduling? (Also known as?)

Definition: Rescheduling (also called Prolongation or Ever-Greening) is the process of re-fixing the terms and conditions of a non-performing / classified loan so as to regularize it and facilitate recovery. Bangladesh Bank recognizes it as a legitimate banking practice — but only within strict limits.

At Mercantile Bank PLC (MBPLC): Rescheduling is governed by Bangladesh Bank's BRPD directives. A rescheduled loan is reclassified as Unclassified (STD) on the date of rescheduling, subject to maintaining required provisions.

Maximum Times Allowed: 3 (Three) — after 3 reschedulings, the borrower is treated as a defaulter and no further rescheduling is permitted without Bangladesh Bank's approval.

Q: What are the classification categories and provisioning rates? (BRPD Circular 15/2024 — Effective April 2025)

Category	Short Form	Provision Rate (General)	Nature
Unclassified — Standard	STD / UC	1%	Performing
Special Mention Account	SMA	5%	Watch list
Substandard	SS	20%	Classified
Doubtful	DF	50%	Classified
Bad & Loss	BL	100%	Classified

📌 Note on Short-Term Agri & Micro Credit (BRPD 15/2024) Provision: 5% for SS and DF categories, and 100% for BL. (Same as before but now aligned under the new master circular.)

Q: What are the 4 types of loans for rescheduling purposes? Give examples from MBPLC / conventional banking.

#	Loan Type	Characteristics	MBPLC / Conventional Examples	Islamic Banking Equivalents
1	Continuous Loan	Has expiry date & limit; no fixed payment schedule; revolving (1 year basis)	CC (Cash Credit), OD (Overdraft)	Bai Muajjal, Murabaha, MPI, Bai Salam
2	Demand Loan	Repayable on demand by bank; has expiry date	Forced LIM, PAD, FBP, IBP	Murabaha General LC, MDB (Inland), Bai-sarf (FDB), PAD, Bai Muajjal BB Bills
3	Fixed Term Loan	Payable by repayment schedule within fixed time	Term Loan (≤5 yrs and >5 yrs)	HPSM, HDS, SHDS
4	Short-Term Agri & Micro Credit	Defined by ACFID; repayable within 12 months	Agri loans, Micro finance	RDS, Non-Agri Credit, Self-Reliant Credit, Weavers Credit

📊 Rescheduling Time Limits by Loan Type

1. Continuous Loan — Rescheduling Time Limits

After rescheduling, treated as a Term Loan. Down payment same as below.

Rescheduling	Substandard (SS) 20% Provision	Doubtful (DF) 50% Provision	Bad/Loss (BL) 100% Provision	Down Payment (Cash)
1st	18 months from reschedule date	12 months from reschedule date	12 months from reschedule date	Overdue ≤ Tk.1 crore: 15% Overdue >1 crore to 5 crore: 10% (min Tk.15 lac) Overdue >5 crore: 5% (min Tk.50 lac) ★ NEW Feb 2026: Pay only 50% of above at approval; remaining 50% within 6 months
2nd	12 months	9 months	9 months
3rd	6 months	6 months	6 months

2. Demand Loan — Rescheduling Time Limits

Rescheduling	Substandard (SS)	Doubtful (DF)	Bad/Loss (BL)	Down Payment
1st	12 months	9 months	9 months	Same as Continuous Loan schedule above
2nd	9 months	6 months	6 months
3rd	6 months	6 months	6 months

3. Fixed Term Loan — Rescheduling Time Limits

Rescheduling	Substandard (SS)	Doubtful (DF)	Bad/Loss (BL)	Down Payment (Cash)
1st	24 months	18 months	18 months	15% of overdue installment OR 10% of total outstanding — whichever is less
2nd	18 months	12 months	12 months	30% of overdue installment OR 20% of total outstanding — whichever is less
3rd	12 months	9 months	9 months	50% of overdue installment OR 30% of total outstanding — whichever is less

4. Short-Term Agricultural & Micro Credit — Rescheduling Time Limits

Rescheduling	Time Limit (Max)	Down Payment (Cash)
1st	2 years from rescheduling date	15% of overdue installment OR 10% of total outstanding — whichever is less
2nd	1 year from rescheduling date	30% of overdue installment OR 20% of total outstanding — whichever is less
3rd	6 months from rescheduling date	50% of overdue installment OR 30% of total outstanding — whichever is less

🆕 Special Rescheduling Facility — 2025/2026 NEW

📋 BRPD Circular No. 07/2025 + Nov 2025 Extension + Feb 2026 Relaxation Bangladesh Bank introduced a special rescheduling facility for borrowers whose loans became classified due to circumstances beyond their control (policy-affected businesses during prior administration).

Feature	Details
Eligible Loans	Loans classified as of 30 November 2025
Maximum Term	10 years (with up to 2-year grace period)
Down Payment	2% of total outstanding classified loan balance
New Feb 2026 Rule NEW	50% of down payment at approval + remaining 50% within 6 months
Application Deadline	31 March 2026 (extended from 31 December 2025)
Loan Status During Exit	Upgraded to Exit (SMA) — borrower removed from defaulters' list
Annual Repayment	Minimum 20% of outstanding per year; quarterly installments mandatory
New Loan Restriction	No new funded facilities; non-funded (e.g., LC) still allowed
Interest Waiver Decision	Board of the respective bank (within existing policies & BB guidelines)
Special Restructuring	Unclassified term loans: extra 2 years beyond BRPD Circular 16/2022 term

🔢 Provision Calculation — Base Formula (BRPD 15/2024)

Q: How is the provision base calculated for a rescheduled / classified loan?

Provision must be maintained on the higher of the following two bases:

1. Outstanding loan balance minus (Interest Suspense amount + Value of Eligible Collateral)
2. 15% of the outstanding balance of the loan

Eligible Collateral — Recognised Value
100%	(a) Deposit under lien against loan (b) Government bond / Savings Certificate under lien (c) Guarantee by Government of Bangladesh (d) Gold pledged with the bank
50%	(a) Market value of easily convertible commodities under bank control (b) Land and buildings mortgaged with the bank (c) Average market value of shares for last 6 months OR face value — whichever is less

Q: What happens to interest on rescheduled loans?

• Unrealized interest is credited to Interest Suspense Account (NOT to Income Account)
• As soon as a loan is classified as B/L, charging of interest in the same account ceases
• Amount in Interest Suspense cannot be taken to income unless actually realized
• Upon rescheduling, the loan moves from classified to Unclassified (STD) on the date of rescheduling

Q: How does Mercantile Bank PLC (MBPLC) handle loan rescheduling?

Mercantile Bank PLC follows Bangladesh Bank's BRPD directives strictly. As a conventional commercial bank:

• MBPLC must have a Board-approved rescheduling policy
• Rescheduling decisions are made at the level where the loan was originally sanctioned
• For large loans or loans related to bank directors: prior approval of Bangladesh Bank is required
• Interest income from rescheduled loans is only recognized on actual cash receipt
• Rescheduled loans are reported to CIB (Credit Information Bureau) of Bangladesh Bank
• MD/CEO can downgrade SS to SMA/STD with justification; Board approval required to move from SS to SMA/STD
• Quarterly classification; CL-1 statements submitted within 15th of next month after quarter-end

Q: What is the Islamic banking (AAOIFI) position on rescheduling? (Relevant for MBPLC's Islamic Banking Windows)

• An Islamic bank (or Islamic Banking Window of MBPLC) cannot charge extra returns merely for extending the repayment date — this constitutes Riba
• Only actual administrative expenses of the rescheduling transaction may be charged
• Renewal of Islamic facilities must be done by entering into a new contract, not just extending the existing one
• A charitable penalty clause (donated to charity fund, not to bank) is permissible for procrastinating debtors

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⚡ Quick Recall Summary Table — Exam Ready

Loan Type	1st Reschedule Max	2nd Reschedule Max	3rd Reschedule Max	Down Payment (1st / 2nd / 3rd)
Continuous (SS / DF / BL)	18 / 12 / 12 months	12 / 9 / 9 months	6 / 6 / 6 months	15% / 10% / 5% of overdue (varies by amount)
Demand (SS / DF / BL)	12 / 9 / 9 months	9 / 6 / 6 months	6 / 6 / 6 months	Same as Continuous
Fixed Term (SS / DF / BL)	24 / 18 / 18 months	18 / 12 / 12 months	12 / 9 / 9 months	15% or 10% / 30% or 20% / 50% or 30% (whichever less)
Short-Term Agri & Micro	Max 2 years / 1 year / 6 months			Same as Fixed Term
Special (2025) NEW	Up to 10 years + 2-yr grace; 2% down; deadline 31 Mar 2026			50% now + 50% in 6 months

🧠 Mnemonic to Remember — "CDFST"

🔑 Mnemonic: "Can Doctors Fix Short-Term Problems?" → CDFST Rule

C · D · F · S · T

• C = Continuous loan — starts at 18/12/12 months (1st reschedule for SS/DF/BL)
• D = Demand loan — starts at 12/9/9 months (shorter than Continuous)
• F = Fixed Term loan — longest: 24/18/18 months (1st reschedule SS/DF/BL)
• S = Short-term Agri — simplest: 2 yr / 1 yr / 6 months
• T = Three times maximum — then borrower = defaulter!

💡 Memory trick for Fixed Term down payment: "15-30-50 OR 10-20-30 — always pick LESS!"
💡 Feb 2026 trick: "Half now, half in six" — 50/50 split rule.
💡 Provision trick: "UC=1, SMA=5, SS=20, DF=50, BL=100" → "U Smile, So Do Bad Losers" → 1, 5, 20, 50, 100

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📌 For Exam Purposes — Key Facts to Quote 1. Maximum rescheduling: 3 times
2. Rescheduled loan treated as: Unclassified (STD) from date of rescheduling
3. Rescheduled loan is reported to: CIB of Bangladesh Bank
4. Provision base: Higher of (Outstanding − Interest Suspense − Eligible Collateral) OR 15% of outstanding
5. 100% eligible collateral: Govt bond, deposit lien, Govt guarantee, gold
6. 50% eligible collateral: Land & building, shares (6-month avg or face value, lower), convertible commodities
7. Latest special facility deadline: 31 March 2026 | Down: 2% split 50/50 now & in 6 months
8. BB Governor (14th): Md. Mostaqur Rahman, FCMA (since 26 Feb 2026)

Labels: Loan Rescheduling BRPD Circular 15/2024 Loan Classification Provisioning Mercantile Bank PLC Bangladesh Bank NPL

Bankessentials.blogspot.com — Updated March 2026
Prepared for Banking Promotion Exam 2026 | Mercantile Bank PLC (MBPLC)

Authority: Bangladesh Bank BRPD
Circular: 15/2024 | 07/2025 | Feb 2026

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Classification and provisioning

LOAN CLASSIFICATION AND PROVISIONING

Bangladesh Bank  |  BRPD Circular No. 15 dated 27 November 2024  |  Effective: 01 April 2025  |  Applies to: All Scheduled Banks in Bangladesh including Islamic Banks

1. Categories of Loans and Advances

All loans and advances are grouped into four categories for the purpose of classification:

SL	Category	Definition & Examples
1	Continuous Loan	Loan accounts in which transactions may be made within a certain limit and have an expiry date for full adjustment. Examples: Cash Credit (CC), Overdraft (OD).
2	Demand Loan	Loans repayable on demand by the bank. Includes Post Import Financing (PIF), Payment against Document (PAD), Foreign Bill Purchased (FBP), Inland Bill Purchased (IBP). Contingent or other liabilities turned into forced loans (without prior approval as regular loan) are also treated as Demand Loans.
3	Fixed Term Loan	Loans repayable within a specific time period under a specific repayment schedule.
4	Short-term Agricultural Credit	Short-term credits listed under the Agricultural and Rural Credit Policy and Program issued by the Agricultural Credit Department (ACD) of Bangladesh Bank. Agricultural sector credits repayable within 12 months are also included.

2. When a Loan is Treated as Past Due / Overdue

All loans are treated as past due or overdue as follows:

Loan Category	When Treated as Overdue / Past Due
Continuous Loan	From the following day of the expiry date, if not repaid / renewed.
Demand Loan	From the following day of the expiry date or demand by the bank, if not repaid.
Fixed Term Loan	Unpaid instalment(s) or part of instalment(s) are treated as past due from the following day of the due / expiry date.
Short-term Agricultural Credit	From the following day of the expiry date, if not repaid.

3. Classification Under Objective Criteria

All loans are classified into seven grades based on the period of past due or overdue. The criteria below apply uniformly to all four loan categories:

CL Grade	Status	Period of Past Due / Overdue
STD-0	Unclassified	No past due or overdue
STD-1	Unclassified	≥ 1 day but < 1 month overdue
STD-2	Unclassified	≥ 1 month but < 2 months overdue
SMA	Unclassified	≥ 2 months but < 3 months overdue
Sub-Standard (SS)	Classified (NPL)	≥ 3 months but < 6 months overdue
Doubtful (DF)	Classified (NPL)	≥ 6 months but < 12 months overdue
Bad / Loss (B/L)	Classified (NPL)	≥ 12 months overdue

Classified loans — Sub-Standard (SS), Doubtful (DF), and Bad/Loss (B/L) — are treated as Non-Performing Loans (NPL). Loans shall also be reported as defaulted loans under section 5(GaGa) of the Bank Company Act, 1991.

4. Classification Under Qualitative Criteria

Any loan may be classified to a higher grade than its objective criteria result if the bank judges that full repayment is unlikely, even without any past due or overdue. Classification reflects the degree of deterioration in the borrower's creditworthiness. The final classification applied is the worse of the objective and qualitative grades.

Grade	Indicative Qualitative Assessment Factors
SMA	Obligor: Occasional overdrawn within the past year; below-average or declining profitability; barely acceptable liquidity; problems in strategic planning. Bank: Loan not made in compliance with internal policies; failure to maintain adequate and enforceable documentation; minor operational or governance weaknesses; poor control over collateral.
Sub-Standard (SS)	Recurrent overdrawn; low account turnover; competitive difficulties; location in a volatile industry with an acute drop in demand; very low profitability that is also declining; inadequate liquidity; cash flow less than repayment of principal and interest; weak management; doubts about integrity of management; conflict in corporate governance; unjustifiable lack of external audit; pending litigation of a significant nature. Bank: Absence of adequate documentation of obligor's net worth, profitability, liquidity and cash flow.
Doubtful (DF)	Permanent overdrawn; location in an industry with poor aggregate earnings or loss of markets; serious competitive problems; failure of key products; operational losses; illiquidity including the necessity to sell assets to meet operating expenses; cash flow less than required interest payments; very poor management; non-cooperative or hostile management; serious doubts about integrity of management; doubts about true ownership; complete absence of faith in financial statements.
Bad / Loss (B/L)	Obligor seeks new loans to finance operational losses; location in an industry that is disappearing; location in the bottom quartile of its industry in terms of profitability; technological obsolescence; very high losses; asset sales at a loss to meet operating expenses; cash flow less than production costs; no repayment source except liquidation; presence of money laundering, fraud, embezzlement or other criminal activity; no further support by owners.

5. Improvement in Classification (Declassification)

A classified loan may be moved to a more favourable grade subject to the following authority requirements:

Movement	Authority Required
B/L → DF  or  DF → SS	Managing Director / CEO — with appropriate written justification.
SS → SMA or STD	Board of Directors — with written justification presented by the originating branch and the MD/CEO.
Bangladesh Bank-classified loan	Cannot be declassified without consent of the concerned Department of Banking Inspection of Bangladesh Bank.

Where there is disagreement on classification between bank management and Bangladesh Bank's inspection team, the judgment of Bangladesh Bank shall prevail.

6. Accounting of Interest on Classified Loans

• Sub-Standard (SS) and Doubtful (DF): Interest accrued is credited to the Interest Suspense Account — not to the Income Account.
• Bad/Loss (B/L): Charging of interest ceases immediately. If interest is charged for any special reason, it is preserved in the Interest Suspense Account.
• Rescheduled loans: Unrealised interest is credited to the Interest Suspense Account instead of the Income Account.
• Recovery: Upon recovery of classified loans, interest (both charged and uncharged) is recovered first; principal is adjusted thereafter.
• Litigation: Where a lawsuit is filed for recovery, interest up to the date of filing may be charged to the loan account — but must be preserved in the Interest Suspense Account.

7. Maintenance of Provision

Banks are required to maintain provisions at the following rates. These are absolute minimums; banks are encouraged to assess adequacy on a continuous basis.

7.1 Standard Provision Rates

Provision Type	Classification / Category	Rate
General Provision	STD-0, STD-1, STD-2 (all unclassified loans)	1% of outstanding
General Provision	SMA	5% of outstanding
Specific Provision	Sub-Standard (SS)	20% of base
Specific Provision	Doubtful (DF)	50% of base
Specific Provision	Bad / Loss (B/L)	100% of base

7.2 Concessional Provision Rate — Short-term Agricultural Credit & CMSME

Bangladesh Bank has granted a temporary concession to encourage lending to the agricultural sector and small enterprises:

Sector	Applicable Grade	Concessional Rate
Short-term Agricultural Credit & Cottage, Micro and Small (CMS) credits under CMSME	STD-0, STD-1, STD-2 and SMA (all unclassified — both Standard & SMA)	0.50% of outstanding (valid until 31 December 2026)

This concessional rate applies only to unclassified loans in these sectors. Specific provisions for SS, DF and B/L remain at the standard rates of 20%, 50% and 100% respectively. All other guidelines of BRPD Circular No. 15/2024 remain unchanged.

8. Base for Specific Provision

Type of Eligible Collateral	Base for Specific Provision
Deposit under lien; Government bond / savings certificate under lien; Guarantee by Govt of Bangladesh, Bangladesh Bank, or AAA-rated MDBs	Outstanding balance minus Interest Suspense minus full value of eligible collateral. (No minimum floor applies.)
All other eligible collaterals (land & building, gold, shares, easily marketable commodities)	The GREATER of: (i) Outstanding balance minus Interest Suspense minus eligible collateral value; OR (ii) 15% of the outstanding balance of the loan.

9. Eligible Collateral

The following collateral types are recognised as eligible collateral for deduction from the outstanding balance when calculating the base for provision:

Value Deducted	Eligible Collateral
100%	(a) Deposit under lien against the loan (b) Government bond / savings certificate under lien (c) Guarantee given by the Government of Bangladesh, Bangladesh Bank, or AAA-rated Multilateral Development Banks (MDBs) (d) Market value of gold or gold ornaments pledged with the bank
50%	(a) Market value of easily marketable commodities kept under control of the bank (b) Market value of land and building mortgaged with the bank (valuation by Bangladesh Bank-enlisted firm is mandatory) (c) 50% of the average market value for the last 6 months, OR 50% of the face value, OR 50% of the last closing price of shares traded in stock exchange — whichever is the lowest

Collateral valuation notes:

• Easily marketable goods must be pledged, readily en-cashable, under full control of the bank, and periodically verified including insurance cover and expiry checks.
• Land and buildings must be valued by a Bangladesh Bank-enlisted collateral valuation firm. Temporary structures are not recognised as buildings.
• Collateral revaluation: movable collateral — not more frequently than once a year; immovable — not more frequently than once every three years. Where objective evidence requires earlier revaluation, the lower of the last two valuations applies.

10. General Instructions and Reporting

• Classification activities are conducted on a quarterly basis.
• CL forms: CL-1 (consolidated summary), CL-2 (Continuous Loans), CL-3 (Demand Loans), CL-4 (Fixed Term Loans), CL-5 (Short-term Agricultural Credit).
• CL-1 statements (both Domestic Banking Unit and Offshore Banking Unit) must be uploaded to Bangladesh Bank's Enterprise Data Warehouse (EDW) using template T_PS_Q_LN_PROV.
• Submission deadline: Within the 15th of the month following each quarter-end. Non-compliance may result in penalty.
• Classification status of each loan must be reported to the Credit Information Bureau (CIB) per Bangladesh Bank instructions.
• Written justification — signed by both the classifying officer and the reviewer — must be maintained in each loan file and made available for Bangladesh Bank inspection.
• Off-Balance Sheet exposures: Provisioning follows BRPD Circular No. 06/2023 (not covered by BRPD 15/2024).
• Islamic banks: This classification and provisioning policy applies equally to investments of Islamic banks (BRPD 15/2024, Para 13).

11. Quick Recall — Mnemonics and Memory Hooks

Memory Hook / Mnemonic	What It Locks In
"C – D – F – S"	4 loan categories: Continuous, Demand, Fixed Term, Short-term Agricultural Credit
"0 → 1 → 2 → SMA → SS → DF → BL"	7-tier journey. Like a patient's condition: Stable-0, Stable-1, Stable-2 → Special Watch → Sub-standard → Doubtful → Bad/Lost
"3 – 6 – 12"	SS triggers at 3 months | DF at 6 months | B/L at 12 months overdue. Think of it as a doctor's prescription: review at 3, 6, 12 months.
"NEXT DAY Rule"	ALL loan types become past due from the next day after the expiry / due date — no grace period.
"1 – 5 – 20 – 50 – 100"	Provision rates: STD = 1% | SMA = 5% | SS = 20% | DF = 50% | B/L = 100%
"Half-rate for farmers & small biz"	Short-term Agri & CMS/CMSME unclassified loans (STD + SMA): concessional rate of 0.50% until 31 Dec 2026
"GGGM = 100%"	100% collateral: Govt deposit lien, Govt bond/savings cert, Govt/BB/MDB Guarantee, Market value of Gold
"LSS = 50%"	50% collateral: Land & building, Shares (lowest of avg 6-month / face value / last closing), Saleable commodities
"Floor = 15%"	Base for specific provision floor (for other-than-premium collateral) = 15% of outstanding balance
"IFRS 9 by 2027"	Bangladesh Bank targets Expected Credit Loss (ECL) methodology under IFRS 9 by 2027 — forward-looking provisioning

Source: Bangladesh Bank, BRPD Circular No. 15 dated 27 November 2024 (effective 01 April 2025); BRPD Circular No. 05 dated 25 June 2025 (revised CL reporting forms — all other instructions unchanged); Bangladesh Bank circular on concessional provision for Short-term Agricultural Credit & CMS/CMSME (December 2025, valid until 31 December 2026, supersedes October 2025 circular). This circular supersedes BRPD Circular No. 14/2012 and all subsequent modifications. Off-Balance Sheet provisioning: BRPD Circular No. 06/2023.

Chapter 1( One) Investment Mechanism & Shariah Lapses thereof

Difference between Loan and Investment

In case of Investment, invested  money turned into kind and Invested kind turned into money and then come back to investors with profit or loss.

In loan, money or kind given as loan come back with some additional amount which is interest. Loan given does not bear any risk.

Investment Mechanism in Islami banking

There are three types of investment mechanism  in investment:

1.       Bai( Buy-sale) mechanism:    bai Murahaba( sale on agreed upon profit)

                                               :    bai Muajjal ( sale on credit)

                                               :    Bai Salam (advance payment, goods deferred)

                                               :    bai Istisna delivery of goods & payment deferred against work order used in Manufacturing and Construction and agriculture.

2.       Shirkat/share mechanism :   Mudaraba ( Shahib al mal & mudarid-enterpreneur)

                                                :   Musharaka

3.       Ijara/leasing Mechanism     :   leasing or Ijara

                                                   :   Hire purchase; Ijara bil Bai (buying +rent=Pay both at a time)

                                                   :   Hire-purchase under Shirkatul Melk (HPSM) Share in ownership

Gradual transfer of ownership on payment of every installment