Loan write-off facility means the provision to remove the debt from the balance sheet by providing adequate resources instead of inflating the accounting sector unnecessarily when the quality of a loan is declining and there is uncertainty of recovery.
What is loan write-off facility?
Coming to the term Write-Off loans, one major point that differentiates it from waive-off is that the loan amount is not cleared out or waived off. For example, a person has taken a loan from a bank for a foreign trip and has not returned the loan amount to the bank after the promised time duration. In this case, the bank will try different methods to recover the loan amount such as calling the person, his family members, and even some legal steps. If even still the loan amount is not recovered, the bank will expect to recover the money whenever the person is back in the country again
But this unrecovered loan amount cannot be left out without any records. Hence, in order to tally the amounts in the balance sheet, this amount is mentioned as a write-off loan amount so that this amount can be recovered later on. Hence, the major difference is that loan waive-off is something where the loan-taker is released from the burden of paying back the loan amount, while in the case of Loan write-off facility; the financial institute still has hopes to get back the loan amount from the person who has taken loan but has not returned it back. Hence loan write 0ff is Prepare for bank.
Cancellation does not mean relieving the borrower of the debt. In fact, it means release from the bank’s balance sheet. You must file a lawsuit before you can cancel. Issued by Bangladesh Bank In the light of BRPD Circular No. 2 and DFIM Circular No. 3 dated 08-04-2015
Loan cancellation policy is as follows:
1. Banks classified as bad and bad can be canceled at any time. Classified into bad and loss. 5 years have elapsed since then and loans with 100% provision are reserved;
2. If 100% provision of the balance is not maintained, the current profit account of the bank may be debited and credited to the loan account.
3. If no legal action has been taken against the loan account selected for cancellation, a case must be filed in the court during the cancellation period. However, tk. 50,000 / – can be canceled without filing a loan case of its lower amount.
4. No loan may be written off without the approval of the Board of Directors;
5. Even after the repayment of the loan, the concerned recipient has to report the credit information of Bangladesh Bank as a defaulter;
6.Non-performing entities can be employed for recovery of bad loans.
7. The account of the cancellation loan must be kept in a separate ledger;
8. In case of cancellation of loan taken in the name of any director of the bank, approval of Bangladesh Bank is required;
9. Every effort should be made to recover the canceled loan.
Write-off and Waive Off ls not same, here some discussion
There are great difference between loan waive offs and loan write-offs. Though the nature of both terms may seem to be almost similar, there is a major point that creates a difference between both. It is important to understand both the terms individually in order to understand the difference.
Difference between Write-off and Waive Off
|Loan waive off is complete cancellation of recovery of loan.||A non-performing asset is considered in Loan write off after all avenues of recovery are exhausted and chances of recovery of due loan seem remote. Does not mean complete cancellation of recovery.|
|provided by govt. to farmers in scenario of natural clamity (conditions beyond control)||done by banks to achieve tax efficiency.|
|whereas loan waiver is cancellation of recovery or refraining from claiming the dues.||Writing off a loan or asset is considering that it does not have future value or no longer serves the purpose|
|A loan waiver is the relinquishment of the person’s ability to pay back loan due to certain circumstances. Like the government waives off loans taken by farmers in situations of natural clamity or very bad harvest.||Loan write off is used by banks in situations of bad loans|
|It is done in extreme situations like the earning member dies or became disabled to an extent that there is no source to pay back the loan.||When a nonperforming loan is written off, the lender receives a tax deduction from the loan value.|
Loan write-off is much better then waive-off. Waive-off loan has no chance to get back. But write-off amount will get back one time. so it needs good borrower for giving loan impacts.