Loan Defaulter in Bangladesh: Legal Consequences and CIB Listing (2026)

Loan defaulter Bangladesh rules in 2026: what the status means

Becoming a loan defaulter Bangladesh banks report to the central bank is no longer a private matter between a borrower and its lender. Once an overdue facility crosses the statutory line, the borrower's name enters the Credit Information Bureau database, every other bank is barred from lending to it, its directors and guarantors are exposed, and it may be disqualified from contesting a parliamentary election. If the bank goes further and finalises the borrower as a wilful defaulter under the Bank Company (Amendment) Act 2023, the consequences extend to travel bans, refusal of trade licences and a block on registering new companies.

This guide explains how the law draws those lines in 2026: the statutory tests, the wilful defaulter procedure, CIB reporting, the election bar, the cases a defaulter faces, the outstanding liability position statement, the rescheduling and exit windows issued between September 2025 and August 2026, and the practical routes to clearing a CIB record.

Summary: A borrower becomes a statutory defaulter when an overdue loan, or the interest on it, remains unpaid six months after it becomes overdue under Bangladesh Bank's definition. Defaulters are reported to the CIB and cannot obtain new credit. A wilful defaulter, finalised by the lender after a hearing, also faces travel, trade licence and company-registration restrictions, a director bar and a criminal case. Rescheduling, restructuring and exit facilities are the main routes back to regular status.

Key point: Ordinary default and wilful default are different legal states. Travel bans, trade licence refusals and company-registration blocks under section 27Kha(6) of the Bank Company Act attach only to a borrower finalised as a wilful defaulter, after a hearing and with a thirty-day appeal to Bangladesh Bank. Ordinary default carries the credit bar, CIB listing and the election disqualification.

At a glance

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Table of Contents

Who counts as a loan defaulter Bangladesh law recognises

The starting point is clause (gaga) of section 5 of the Bank Company Act 1991. A defaulting borrower is a person, institution or company, on whose own behalf or on behalf of a related institution, an advance, loan or other financial facility, or any part of it or the interest or profit on it, remains unpaid six months after it became overdue under the definition issued by Bangladesh Bank.[1] The clause was substituted in 2013 and has not been changed since.

Two features of the definition matter in practice. First, it is tied to Bangladesh Bank's own overdue and classification rules, so a change in those rules moves the statutory line without any amendment to the Act. Second, it reaches beyond the borrowing entity. For this purpose a person or company is a related institution of another if it is a director of that institution, holds more than 20 per cent of its shares or is a guarantor of its loan.[1]

Classification rules since April 2025

Bangladesh Bank tightened its classification rules in November 2024 to meet IMF conditions, with effect from April 2025. A failure to pay for three months, or 90 days past the due date, now leads to classification for every type of loan. The categories are substandard at three to six months overdue, doubtful at six to twelve months and bad or loss at twelve months or more, and the separate, longer tenures for cottage, micro, small and medium enterprise loans were revoked.[6] Provisioning rates were left unchanged: 20 per cent for substandard, 50 per cent for doubtful and 100 per cent for bad or loss loans.[6]

Classified loan, defaulter and wilful defaulter

A classified loan is a prudential category in the bank's books. A defaulting borrower holds the statutory status that triggers the credit bar, CIB circulation and the election disqualification. A wilful defaulter is a narrower class, finalised through a separate procedure, to which the most severe sanctions attach. Every loan defaulter Bangladesh banks pursue should first establish which of the three it is, because the defence and exit route differ for each.

Scale of the problem in 2026

At the end of December 2025, total outstanding bank loans stood at Tk 18.20 lakh crore, of which Tk 5.57 lakh crore, or 30.60 per cent, was in default.[9]

Wilful defaulter rules under the Bank Company Act

The Bank Company (Amendment) Act 2023 (Act No. 13 of 2023) inserted a statutory definition of the wilful defaulting borrower in section 5 and a new section 27Kha setting out how such borrowers are identified, listed and sanctioned.[1] Our overview of banking law in Bangladesh places the amendment in its wider governance context; here the focus is on what it means for a borrower.

The four limbs of wilful default

A wilful defaulter is a defaulting borrower that does one or more of the following: fails to repay a loan, advance, investment or other financial benefit taken for itself, a family member or a related party despite having the capacity to pay; obtains such a facility in its own name, a family member's or a related party's through forgery, fraud or false information; uses all or part of the facility for a purpose other than that for which it was sanctioned; or transfers or moves the collateral without the lender's prior written permission.[1] Bangladesh Bank may issue directions on applying the definition.

The first limb is the one most often disputed. Capacity to pay is a question of evidence: cash flows, related-party transfers and conduct after default. A loan defaulter Bangladesh banks wish to finalise as wilful must be shown to have had the means to pay, not merely to have failed.

The identification procedure

Bangladesh Bank's circular of 12 March 2024, titled "Identification and finalization of willful defaulters and measures to be taken against them", required every bank to set up a wilful defaulter identification unit by 9 April 2024, and to decide within 30 days of a customer becoming a defaulter whether it is wilful. The circular took effect from 1 July 2024, and once a borrower is finalised the bank reports it to the CIB, which marks it "WD" in its database.[5]

Section 27Kha builds in procedural protections. The borrower must be given an opportunity to present its case before its name is finalised, and the bank must notify the borrower within seven working days after finalisation. A person or entity aggrieved by the decision may appeal to Bangladesh Bank within 30 days, and Bangladesh Bank's decision on the appeal is final.[1] A missed hearing or late appeal is rarely recoverable.

Sanctions that follow a final listing

Once the list is finalised, section 27Kha attaches a series of consequences:

• Agency sanctions: Bangladesh Bank may send the list to government agencies and request a travel ban, a bar on issuing trade licences and a bar on company registration with the Bangladesh Securities and Exchange Commission and the Registrar of Joint Stock Companies and Firms, and those agencies must act.[1]
• Director disqualification: a listed wilful defaulter cannot become a director of any bank or financial institution until a period fixed by Bangladesh Bank, not exceeding five years from removal from the list, has passed, and a sitting director's office may be declared vacant.[1]
• Demand notice and criminal case: if the borrower does not appeal, or the appeal fails, the bank must serve a notice giving two months to pay the full amount; if payment is not made, it may file a criminal case, without prejudice to recovery in the Artha Rin court.[1]
• Wider measures in the circular: the 2024 circular added ineligibility for government honours and sent the list to land, plot, flat and vehicle registration authorities for necessary action.[5]

Banks are also exposed. A bank that breaches section 27Kha, or that Bangladesh Bank finds to have done so knowingly, faces a fine of Tk 50 lakh to Tk 1 crore, plus up to Tk 1 lakh for each day the breach continues.[1] The same twin structure of defaulter and wilful defaulter applies to non-bank lenders through section 30 of the Finance Company Act 2023.[2]

CIB reporting and the credit bar

The Credit Information Bureau of Bangladesh Bank is the mechanism through which default becomes a system-wide fact. Under section 27KaKa of the Bank Company Act, every bank and financial institution must send its list of defaulting borrowers to Bangladesh Bank, which circulates it to all banks and financial institutions in the country under the Bangladesh Bank Order 1972.[1]

No new credit for a listed defaulter

The same section provides that no bank or financial institution may extend any loan facility to a defaulting borrower.[1] In practice, every lender pulls a CIB report before sanctioning, renewing or enhancing a facility, so a single listed account can freeze a group's working capital, LC limits and guarantee lines across the banking system.

There is an important proviso for groups. A person, firm or company within a group of mutually interested parties is not treated as a defaulter merely because another member of the group is in default, if it is not itself a wilful defaulter or if Bangladesh Bank finds reasonable cause for the failure to repay. Such an entity may receive facilities with Bangladesh Bank's prior approval and in line with its directions.[1] For diversified groups, this proviso can keep healthy companies funded while one subsidiary is restructured.

Guarantors and directors in the CIB

Guarantors are recorded in the CIB when the borrower defaults.[14] Directors are exposed in a second way: under section 27Ka, a director of a debtor company cannot resign, and no director may transfer or sell shares, without the approval of the lending bank's board or higher authority.[1] Anyone giving a personal guarantee or joining the board of a borrowing company is therefore taking on potential CIB exposure, not a formality.

Can a CIB listing be challenged in court?

Two lines of authority sit side by side. In the ordinary civil courts, the High Court Division held on 1 June 2025, in First Miscellaneous Appeal No. 92 of 2024 against Janata Bank, that a suit seeking a declaration that a CIB listing was illegal, and an injunction stopping the bank from reporting the borrower, could not succeed. The court treated reporting as a statutory function under the Bangladesh Bank Order 1972 and the Bank Company Act, and followed an earlier decision reported at 73 DLR (HCD) 554 that CIB enlistment cannot be challenged in that way.[13]

The writ jurisdiction is used heavily all the same. In the first half of 2025, the High Court Division granted 554 of 748 writ petitions seeking to clear guarantors' names from the CIB.[14] Stays are interim, can be vacated on appeal, and do not stop the debt accruing.

Consequences for a loan defaulter Bangladesh borrowers often overlook

Beyond the credit bar, default status reaches into politics, mobility and corporate life, and each consequence has its own legal source and trigger.

The election bar

Article 12(1) of the Representation of the People Order 1972 disqualifies from election to Parliament a loanee who has defaulted, before the day of submission of nomination papers, in repaying any loan or instalment taken from a bank, and a director of a company or partner of a firm that has so defaulted. Small agricultural loans are excluded, meaning crop loans other than tea and tobacco and certain fishery, marketing and irrigation loans of up to Tk 1 lakh including interest. Default is measured by the Bank Company Act definition, and the lists may be obtained from the CIB or the bank concerned.[3]

The test was tightened by amendments in 2019 and 2023, which removed the earlier "seven days" margin for directors and individual loanees respectively, so that the position on the day before nomination is decisive.[3] In the February 2026 parliamentary election, the CIB's first list identified 82 aspirants as defaulters; a second list of 31 names all carried High Court stay orders, 30 of those candidates contested and nine became MPs.[12] The same pattern of last-minute rescheduling and stay orders has drawn sustained criticism, and candidates should expect closer scrutiny of any regularisation made shortly before nomination.[12]

Travel bans, trade licences and company registration

These are wilful defaulter sanctions. They are requested by Bangladesh Bank under section 27Kha(6) once a list is final, and implemented by immigration, licensing and registration authorities.[1] An ordinary defaulter that has not been finalised as wilful is not subject to a section 27Kha travel ban, although travel can still be restricted through court orders in criminal or anti-corruption proceedings. Foreign nationals serving on Bangladeshi boards should read our note on travel restrictions on foreign directors in Bangladesh.

Defaulter loan cases: the proceedings a borrower faces

Section 27KaKa(4) of the Bank Company Act requires the lending bank or financial institution to file a case against a defaulting borrower under the law in force.[1] A loan defaulter Bangladesh lenders pursue will usually face several proceedings at once, each with its own forum and deadlines.

Money loan suits in the Artha Rin Adalat

The principal recovery route is a suit in the Artha Rin Adalat under the Artha Rin Adalat Ain 2003, preceded where applicable by sale of pledged or hypothecated collateral, and followed by a separate execution case, auction and, in the last resort, civil detention. Pre-suit sale, mediation, the 200 per cent cap on claims, deposit requirements on appeal and the execution timetable are explained in our Artha Rin Adalat guide, and decree enforcement in our guide to the execution case in Bangladesh.

Guarantors as co-defendants

As of 31 August 2025, 31,309 recovery cases worth nearly Tk 200,000 crore were pending in the Dhaka money loan courts, and 10,211 of them, covering about Tk 76,000 crore, named guarantors as co-defendants.[14] A guarantor is a party to the suit, a potential judgment-debtor and, through the CIB, a potential defaulter in its own right.

Criminal exposure

For wilful defaulters, section 27Kha(10) authorises a criminal case if the full amount is not paid within two months of the bank's demand notice, notwithstanding anything in any other law, and without hindering the money loan suit.[1] Separately, post-dated cheques given as repayment security frequently lead to prosecutions under section 138 of the Negotiable Instruments Act 1881; see our analysis of cheque dishonour in Bangladesh. Fraud, forgery and diversion of funds can also attract Penal Code, anti-corruption and money laundering proceedings.

Forced loans from trade finance

Many defaulted accounts begin as trade finance: an import LC paid by the bank but not retired by the importer becomes a forced loan, classified and sued on like any other facility. Our guide to LC disputes in Bangladesh covers that sequence.

The outstanding liability position statement from a bank

Every serious step for a defaulting borrower begins with the bank's statement of outstanding liability position: its written account of what is owed on each facility at a stated date, against which rescheduling, exit, settlement and litigation are all negotiated.

What the statement should show

A usable statement should identify each facility separately, with the sanctioned limit, disbursed principal, recoveries, charged interest, interest held in suspense or unapplied, penal interest and charges, the date the account became overdue, its current classification and its CIB reporting status. It should also list security held, guarantors and any rescheduling history. A single consolidated figure without this breakdown is not enough to evaluate a down payment, an interest waiver or a defence.

Why it matters in each scenario

• Rescheduling and exit: down payments under the 2025 and 2026 policies are calculated on the outstanding amount, and an exit may allow the board to waive charged and uncharged interest, so the split between principal and interest drives the cost.[7] [10]
• Litigation: the claim in an Artha Rin suit rests on the bank's account, and the borrower's defence often turns on errors in it, including whether the claim exceeds the statutory cap.
• Elections and transactions: candidates, directors of target companies and acquirers in due diligence need a dated, signed outstanding liability statement for the relevant day, alongside a fresh CIB report.

Evidential value of bank records

Under the Bankers' Books Evidence Act 1891, a copy of a bank entry certified by the bank's principal accountant or manager was prima facie evidence of that entry; the Act has since been replaced by the Bankers' Book Evidence Act 2021.[4] The practical rule is unchanged: figures the borrower does not challenge early become the starting point in court.

How to obtain and test it

Request the statement in writing from the branch and the head-office recovery division, specifying the date, facilities and breakdown required. Reconcile it against the sanction letters and the borrower's own ledger, and dispute unexplained debits in writing before any down payment is made, because a reschedule booked on the bank's figures is hard to reopen.

Rescheduling, restructuring and one-time exit in 2025 and 2026

For most borrowers, the realistic route out of default is not litigation but a regularisation approved by the lender's board under a Bangladesh Bank policy. The general rescheduling framework of BRPD Circular No. 16 of 2022 remains the baseline, and a series of special windows has been layered on top of it since September 2025.[11]

The September 2025 special rescheduling policy

In September 2025 Bangladesh Bank allowed banks to reschedule classified loans of businesses hit by exchange-rate losses, energy shortages and other factors outside their control for up to ten years. The minimum down payment was 2 per cent of the outstanding amount, rising by one percentage point for loans rescheduled three or more times, and the interest rate was set one percentage point below the lowest rate for the relevant sector. Rescheduled loans are placed in special mention accounts, and missing three monthly or one quarterly instalment triggers reclassification. Wilful defaulters and illegally obtained loans are excluded.[7]

The policy also allowed a two-year grace period, required approval by each bank's board rather than by Bangladesh Bank, sent loans above Tk 300 crore to a Bangladesh Bank selection committee, and required lawsuits on the loan to be suspended within 90 days of the facility being granted, with the bank free to cancel and sue again if the borrower breaches.[8] That policy is generally referred to as BRPD Circular No. 07 of 2025.[11]

Extensions and exit accounts in May 2026

On 7 May 2026 Bangladesh Bank extended its special policy support for distressed borrowers to 30 June 2026. Banks must decide applications within three months, counted only after the down-payment cheque or instrument is encashed. Loans settled under special exit facilities must be marked as "exit" accounts, and institutions using them cannot obtain fresh loans beyond existing limits until the full outstanding amount is repaid. The requirement for selection committee approval for borrowers with loans of Tk 300 crore or more was removed.[9]

The June 2026 one-time lump-sum exit

A circular issued on 29 June 2026 reintroduced a one-time exit for loans classified as bad or loss on 30 June 2026, including loans rescheduled between 6 August 2024 and 30 June 2026. The borrower repays its liabilities in a single lump sum, and the bank's board may waive charged and uncharged interest, so that a borrower may exit by repaying principal only. Priority goes to short-term agricultural and cottage, micro, small and medium enterprise loans, decisions are case by case, and the window runs to 31 December 2026.[10]

The August 2026 expansion for large borrowers

On 31 August 2026 Bangladesh Bank expanded the restructuring framework. Single borrowers or groups with total outstanding loans of Tk 1,000 crore or more may obtain special rescheduling of up to fifteen years, including a grace period of up to two years, while smaller borrowers remain under BRPD Circular No. 07 of 2025. Unclassified loans as at 30 September 2026 qualify for special restructuring and adversely classified loans for special rescheduling. Applications were due by 30 September 2026, and banks must finalise them, once the down payment is received, by 31 December 2026.[11]

Choosing between rescheduling and exit

Rescheduling keeps the facility alive, but a single missed instalment can return it to classification. A lump-sum exit ends the exposure, often at a discount on interest, but needs liquidity and limits fresh borrowing.[9] Where a loan defaulter Bangladesh lenders have already sued negotiates a reschedule, the agreement should deal expressly with the pending suit, any execution case, guarantors and the CIB update.

How to clear CIB status as a loan defaulter Bangladesh lenders have reported

There is no single application that removes a name from the CIB. The database reflects what the reporting bank says, so a loan defaulter Bangladesh banks have listed clears its record by changing the account's status at the bank and making sure the change is reported.

Route one: pay or settle in full

Full repayment, or an exit under a board-approved settlement, is the cleanest route. Insist on a written confirmation that the account is closed or settled, a no-dues or settlement letter, release of security and guarantors, and written confirmation that the updated status has been reported to the CIB. Then obtain a fresh CIB report through a bank to confirm the change. For an exit, expect the account to carry an exit marker and restrictions on fresh borrowing until the whole outstanding amount is repaid.[9]

Route two: regularise through rescheduling

Under the September 2025 policy, a rescheduled loan moves into a special mention account rather than an adverse classification, provided instalments are paid.[7] The record is regularised, not erased, and the history remains visible to lenders.

Route three: challenge an incorrect listing

Where the listing is wrong, because the loan is not overdue, the borrower is not related to the defaulting company or the guarantee was never validly given, raise it first in writing with the reporting bank and escalate within the bank. A wilful defaulter finding must be met at the hearing and, if necessary, by an appeal to Bangladesh Bank within 30 days.[1] A civil suit to stop CIB reporting is unlikely to succeed after the June 2025 decision, so where the bank's action is unlawful, the practical forum is the High Court Division's writ jurisdiction.[13] [14]

A practical sequence

TRW approaches a defaulted account in this sequence, whether acting for the borrower, a director or a guarantor.

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Comparing the main routes out of default

The table summarises the principal regularisation and challenge routes. On a phone, scroll it sideways.

None of these routes is automatic: every reschedule and exit is a board decision of the lender, taken on the banker-customer relationship.[10] [11] Our banking and finance litigation practice and restructuring and insolvency practice advise borrowers, guarantors and lenders through each stage.

What to watch for the rest of 2026

Three developments will shape the position of a loan defaulter Bangladesh courts and regulators deal with over the coming months. First, the special rescheduling, restructuring and exit windows close on 31 December 2026, and borrowers who miss them may face a less generous regime.[10] [11] Second, amendments to the Artha Rin Adalat Ain 2003 and a further Bank Company amendment remain under preparation, as tracked in our Artha Rin guide and banking law overview. Third, the controversy over defaulters entering Parliament through rescheduling and stay orders is likely to sustain pressure for tighter rules before the next round of elections.[12]

The earliest decisions carry the most weight: which status applies, what the bank's figures show and which window is still open. For a clear view of your position, contact TRW.

Frequently asked questions

When does a borrower become a loan defaulter in Bangladesh?

Under section 5(gaga) of the Bank Company Act 1991, when a loan, part of it or the interest on it remains unpaid six months after it became overdue under Bangladesh Bank's definition. Since April 2025, a loan is classified once it is three months, or 90 days, past due.[1] [6]

What is a wilful defaulter under the Bank Company Act?

A defaulter that fails to repay despite capacity, obtained credit by forgery, fraud or false information, diverted the funds, or moved collateral without the lender's written consent. The definition was inserted by the Bank Company (Amendment) Act 2023.[1]

Can I appeal against being declared a wilful defaulter?

Yes. You must be heard before finalisation, the bank must notify you within seven working days of finalisation, and you may appeal to Bangladesh Bank within 30 days. Bangladesh Bank's decision on the appeal is final.[1]

Will a loan defaulter face a travel ban?

A travel ban under section 27Kha(6) applies to listed wilful defaulters, at Bangladesh Bank's request to the relevant agencies, together with bars on trade licences and company registration. Ordinary default does not by itself trigger that ban.[1]

Can a loan defaulter contest a parliamentary election?

No. Article 12(1) of the Representation of the People Order 1972 disqualifies a loanee in default before the day nomination papers are submitted, and directors or partners of defaulting companies and firms, subject to an exception for small agricultural loans.[3]

Can a guarantor be listed in the CIB?

Yes. Guarantors are recorded in the CIB when the borrower defaults, and many have sought High Court writs to suspend their listing: 554 such petitions were granted in the first half of 2025.[14]

Can I sue to stop my bank reporting me to the CIB?

A civil suit for that purpose is unlikely to succeed. In June 2025 the High Court Division held that CIB reporting is a statutory function and refused an injunction against it. Unlawful action may instead be challenged by writ.[13]

What is an outstanding liability position statement?

The bank's written account of what is owed on each facility at a stated date, ideally broken down into principal, charged and suspended interest, charges, classification and CIB status. It is the basis for rescheduling, exit, settlement and litigation.

What is the one-time exit facility in 2026?

A June 2026 facility for loans classified as bad or loss on 30 June 2026, allowing repayment in a single lump sum with possible board waiver of charged and uncharged interest. It runs to 31 December 2026.[10]

How long can a defaulted loan be rescheduled for?

Up to ten years under the September 2025 special policy, with a minimum 2 per cent down payment. Since August 2026, borrowers with outstanding loans of Tk 1,000 crore or more may obtain up to fifteen years, including a grace period of up to two years.[7] [11]