The central bank can extend rescheduling facilities to small and medium enterprises if it wants to bump up the lagging private sector credit growth, economists said.

In the monetary policy for the first half of 2017, the private sector credit growth target was set at 16.5 percent. Credit growth stood at 16.03 percent in May. In contrast, in June last year private sector credit growth stood at 16.78 percent.

Bangladesh Bank is set to announce the new monetary policy next week with an aim to maintain the private sector credit growth momentum along with containing inflation. “The central bank's main thrust should be to increase private investment,” said Zaid Bakht, former research director of the Bangladesh Institute of Development Studies.

And the best way to do this is to give some flexibility to commercial banks when it comes to rescheduling, more so in case of small and medium enterprises. 

“I think it needs to be done,” said Bakht, also a chairman of Agrani Bank, adding that if the SMEs are not given the scope for rescheduling they would remain defaulters.

But if they are given the scope, they will get the incentive to work hard to get their businesses to thrive and subsequently pay back the bank loans. But in case of big borrowers, credit should be considered on a case-to-case basis, he added.

Mustafizur Rahman, distinguished fellow of the Centre for Policy Dialogue, supported Bakht's approach.

The large bad borrowers -- the ones with more than Tk 500 crore of loans -- were given scope for rescheduling. So the small and medium entrepreneurs should also be given the scope.

Rahman, however, said the facility must be extended on a case-to-case basis and banker-customer relation.

At the end of 2016, total SME loans stood at Tk 172,639 crore, up 16 percent from a year earlier, according to central bank statistics. SME loans accounted for 23.89 percent of the total loans.

Rahman also said if the default loans could be brought down, the lending rate could be reduced.

“For bringing down the default loan ratio, the central bank must exercise all its power.”

He cited the case of appointment of observers in about 15 banks: the move was not successful in bringing down the default loans.

The central bank must not just stop at appointing observers; it must look to use its other regulatory power.

Rahman said the new monetary policy, due to be announced on July 26, should be set in a way that it supports the government's budgetary target. The government has set the GDP growth target of 7.4 percent and inflation target of 5.5 percent for fiscal 2017-18.

The monetary policy must particularly look to containing inflation, which is on an upward trend, due to a rise in food prices.

He said it will be difficult to contain inflation within 5.5 percent this year.

The BB had targeted to contain inflation within 5.3 percent to 5.6 percent in the last monetary policy. Inflation was 5.44 percent in fiscal 2016-17.

And to achieve the 7.4 percent GDP growth, credit to the private sector has to be increased, Rahman said.

Though credit growth is lagging behind the BB programme, the country's GDP grew 7.24 percent last fiscal year, as per the provisional estimate of the Bangladesh Bureau of Statistics.

The declining remittance inflow and the slower growth of export are the other challenges that need to be tackled by the monetary policy.

Remittance has been playing a strong role for the last couple of years for creating demand in the economy.

Bakht said one of the major reasons for fall in remittance is the exchange rate. 

He said the government can think of introducing a dual exchange rate on a temporary basis such that the remitters get a higher rate.

A BB official said in the new monetary policy the private sector credit growth target may be increased slightly to 17 percent. Besides, the earlier cautious but accommodative policy will also continue.

Despite the inflationary risks, there is unlikely to be any change in the policy rate, he said.

“With the ensuing national election there will be an attempt to make the monetary policy statement populist.”