Write off and Rescheduling.

Write off and Rescheduling of loan

Financial institutions are required to write off loans when they become delinquent by a certain amount. Bank loans that are usually altered to have longer maturities in order to assist the borrower in making the necessary repayments.

Write-Off

A reduction in an individual's or a company's income as the result of an expense. For example, an unplayable credit sale may be a write-off for the creditor, especially if the debtor declares bankruptcy. The bankruptcy means that the debtor is unable to pay the debt, which results in a loss of income for the creditor. A write-off may usually be deducted from one's taxable income. To take an asset entirely off the books because it no longer has any value. If an accrual basis taxpayer has taken money into income when bills were sent out to customers, but then some of the bills became collectible, the taxpayer may write off the collectible ones as a deduction against income. Financial institutions are required to write off loans when they become delinquent by a certain amount.

Write-Off in Accounting

In business accounting, the term write-off is used to refer to an investment (such as a purchase of sell-able goods) for which a return on the investment is now impossible or unlikely. The item's potential return is thus canceled and removed from ("written off") the business's balance sheet. Common write-offs in retail include spoiled and damaged goods.

Write-Off in Banking

Similarly, banks write off bad debt that is declared non-collectible (such as a loan on a defunct business or a credit card due that is now in default), removing it from their balance sheets.

Rescheduled Loans

Bank loans that are usually altered to have longer maturities in order to assist the borrower in making the necessary repayments. Bank loans that are usually altered to have longer maturities in order to assist the borrower in making the necessary repayments. New loan that replaces the outstanding balance on an older loan, and is paid over a longer period, usually with a lower installment amount. Loans are commonly rescheduled to accommodate a borrower in financial difficulty and, thus, to avoid a default. Also called restructured loan.

Definition of 'Debt Rescheduling'

A practice that involves restructuring the terms of an existing loan in order to extend the repayment period. Debt rescheduling may mean a delay in the due date(s) of required payments or reducing payment amounts by extending the payment period and increasing the number of payments.

Rescheduling

Financial Institutions should follow clear guideline for rescheduling of their problem accounts and monitor accordingly Rescheduling of problem accounts should be aimed at a timely resolution of actual or expected problem accounts with a view to effecting maximum recovery within a reasonable period of time.

Purposes of  Rescheduling

Purposes for Rescheduling are given bellow :

(i) To provide for borrower’s changed business condition,

(ii) For better overdue management,

(iii) For amicable settlement of problem accounts.

Cases for Rescheduling

Rescheduling would be considered only under the following cases-

(i) Overdue has been accumulated or likely to be accumulated due to change in business conditions for internal or external factors and the borrower is no way able to pay up the entire accumulated overdue in a single shot.

(ii) The borrower should be in operation and the assets have a productive value and life for servicing the outstanding liabilities.

(iii) The borrower must be capable of and willing to pay as per revised arrangement.

Modes of Rescheduling

Rescheduling can be done through adopting one or more of the following means :

(i) Extension of financing term keeping lending rate unchanged

(ii) Reduction of lending rate keeping financing term unchanged

(iii) Both reduction of lending rate and extension of financing term

(iv) Bodily shifting of payment schedule

(v) Deferment of payment for a short-term period with or without extending the maturity date (this may be a temporary relief to prevent the inevitable collapse of a company). However, under any circumstances reschedule period must not exceed economic life of the asset.

Analysis of  Rescheduling Case and decision on different modes of rescheduling :

An account, which has been going through liquidity crisis, may be considered for rescheduling after identifying symptoms, causes and magnitude of the problem. For rescheduling an account, the criteria mentioned in Bangladesh Bank guideline, if  any has to be followed strictly.

Post Rescheduling Requirements

￾ Rescheduling of a contract must require prior approval of CRM and management 

￾ All rescheduled accounts are to be kept in a separate watch list so that post rescheduling performance of the accounts can be monitored closely.