Cap deposit rates for cheaper loans

The interest rate on lending did not come down to single digit as promised by banks as the rate on deposits remained sticky upwards, said bank directors yesterday.

Earlier on June 20, banks, both public and private, have pledged to lower the interest rate for lending to single digits from July 1 provided there is a cap on the interest rate for deposits.

Private banks then announced they would lower the interest rate on deposits at 6 percent; the state banks did not make any such announcement but their interest rate was expected to shadow the private banks'.

But, neither of the rates has come down one month on. Currently, the private banks' lending rates hover between 10 percent and 16 percent while deposit rates are below 6 percent.

But the rates on fixed deposit schemes for three months to three years range between 5 percent and 10 percent; the rates are above 10 percent in a few banks.

However, the interest rates on all types of deposit schemes at state banks are between 3 percent and 6 percent. Their lending rates vary from 11 percent to 13 percent.

Subsequently, the directors of the private banks yesterday met with Finance Minister AMA Muhith at the Economic Relations Division headquarters in the capital. According to meeting sources the bank directors informed that since the interest rate on deposits has not come down, the rate on lending could not be lowered.

They also said the government agencies withdraw deposits from a bank if they get higher rates elsewhere. Subsequently, they urged the BB to fix a rate.

But a central banker present at the meeting said it cannot be done in a market economy as it would give a wrong signal to the rest of the world.

Eunusur Rahman, senior secretary of the banking division; Abu Hena Mohd Razee Hasan, a deputy governor of the BB; Salman F Rahman, chairman of IFIC Bank; Nazrul Islam Mazumber, chairman of Bangladesh Association of Banks; and AKM Nurul Fazal Bulbul, a member of the Shariah supervisory committee of Exim Bank, were present at the meeting.

The directors will meet with the finance minister again at a larger gathering tomorrow, where representatives of the Bangladesh Bank and the chiefs of all commercial banks will be present.

In the last few months, the private banks were granted various benefits, including the lowering of corporate tax, the slashing of the repo rate and the reduction in cash reserve ratio as the government moved to decrease the lending rate and ease the liquidity crisis.