Bank borrowers face lawsuit hurdle for policy support

Many struggling entrepreneurs seeking to revive closed factories and repay outstanding loans fear losing legal protection under a Bangladesh Bank directive requiring them to withdraw lawsuits before securing policy support.

A circular issued by the central bank’s Banking Regulation and Policy Department-1 on July 29, 2026, requires borrowers seeking government or central bank incentives and policy assistance to withdraw pending cases against the government, Bangladesh Bank or the concerned lenders. Applicants must also submit a list of withdrawn cases and an affidavit confirming that no such lawsuits remain pending.

However, the directive does not guarantee approval after borrowers withdraw their cases, raising concerns about unequal treatment and eroding confidence in the banking sector.

In contrast, a separate circular issued by Bangladesh Bank’s Finance Company Regulation and Policy Department on August 17, 2026, allows Non-Bank Financial Institutions (NBFIs) to assess applications and issue written in-principle approval before borrowers withdraw lawsuits. It also bars changes to approved terms after the required affidavit is submitted.

Business leaders say the difference between the two procedures creates an uneven playing field and exposes bank borrowers to unnecessary risks.

Mohammad Hatem, president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), criticised the central bank for adopting different approaches to borrowers of banks and financial institutions. “The same rules should apply in both cases. Bank customers are being asked to withdraw their lawsuits first, whereas customers of financial institutions can withdraw their cases after their applications have been assessed and an in-principle approval letter has been issued,” he said.

Hatem said bank borrowers should also receive written assurances before surrendering their legal claims. Otherwise, they could lose existing legal protection only to have their applications rejected later. He proposed a formal agreement between lenders and borrowers covering both the withdrawal of lawsuits and the delivery of the promised policy support, ensuring that neither party is disadvantaged unilaterally.

According to Bangladesh Bank data, banks had filed 222,341 cases with the Artha Rin Adalat, or Money Loan Court, by June 2025, involving loans worth Tk 407,435 crore. Meanwhile, bank loans amounting to Tk 182,419 crore were under court stay orders at the end of 2025.

The volume of loans entangled in litigation has added to pressure on the financial sector, with prolonged court proceedings and injunctions hampering recovery efforts. To address mounting defaulted loans, Bangladesh Bank has introduced measures such as one-time settlements, restructuring and rescheduling. However, the central bank has found that some borrowers seek these facilities while continuing legal proceedings against the government, the regulator or their lenders.

A circular issued by the central bank's Banking Regulation and Policy Department-1 on July 29, 2026, requires applicants seeking government or central bank incentive packages and policy support to withdraw pending writ petitions and other lawsuits.

Applicants must submit a list of withdrawn cases and an affidavit on non-judicial stamp paper declaring that no cases against the government, Bangladesh Bank or the concerned bank remain pending.

The directive aims to prevent borrowers from pursuing litigation while simultaneously seeking policy concessions. However, it does not establish a clear mechanism for banks to assess applications and issue written in-principle approval before lawsuits are withdrawn. Nor does it specify a timeframe for assessment or the recourse available to borrowers whose applications are rejected.

Consequently, entrepreneurs hoping to restart businesses may have to relinquish legal protection without knowing whether the proposed assistance will materialise or whether its terms will be commercially viable. Depending on the circumstances and existing court orders, withdrawing a case could also affect protection against recovery measures or loan auctions.

The arrangement could create complications for banks as well. Lenders must assess business viability, repayment capacity, cash flows and collateral before approving concessions. If an application is rejected after a lawsuit has been withdrawn, further disputes could undermine both loan recovery and business rehabilitation.

By contrast, a circular issued by Bangladesh Bank's Finance Company Regulation and Policy Department on August 17, 2026, provides an additional safeguard for customers of non-bank financial institutions.

Under the procedure, a finance company must first assess the borrower's application. If it considers the business viable and the proposal acceptable, it must issue a written in-principle sanction letter. The borrower can then withdraw the lawsuit and submit an affidavit with a list of the withdrawn cases.

The circular also stipulates that the terms of the approved policy support or incentives cannot be changed after the affidavit is submitted.

The provision gives finance company customers a written basis for withdrawing their legal claims and protects them against subsequent changes to the approved terms.

Contacted for comment, Bangladesh Bank Executive Director and spokesperson Arief Hossain Khan said the discrepancy between the two circulars might have resulted from a lack of coordination among the relevant departments.

He said the central bank was reviewing the matter and had asked the relevant department to explain the inconsistency. Bangladesh Bank would decide how to harmonise the circulars after receiving the explanation.

Business leaders believe that aligning the two procedures and introducing written commitments before lawsuits are withdrawn would reduce uncertainty, prevent fresh disputes and strengthen confidence in the central bank's policy support measures.