The government should park its deposits at 6 percent interest rate with banks within the shortest possible time to implement the 9 percent interest rate for lending from April 1.
The Association of Bankers, Bangladesh (ABB), a forum of managing directors of banks, came up with the proposal at a quarterly bankers’ meeting with the central bank.
Bangladesh Bank Governor Fazle Kabir presided over the meeting in which ABB Chairman Ali Reza Iftekhar and managing directors of all banks were present.
“The central bank has informed us it will issue a notice soon to this end. And banks will follow the instructions disseminated by the central bank,” Iftekhar told reporters after the meeting at the Bangladesh Bank headquarters in the capital.
Bringing down the interest rate to 6 percent for deposit is a great challenge for banks.
The government should deposit its funds at 6 percent interest rate in banks before April in a bid to complete preparations for implementation of the single-digit rate on lending, said Iftekhar, also the managing director of Eastern Bank.
Banks have also requested the central bank to rethink whether SME and retail loans will remain out of the purview of the single digit lending rate, he added.
As per the meeting, banks will have to implement the 9 percent interest rate on all of their lending products except credit cards from April, said Md Serajul Islam, spokesperson and an executive director of the central bank. Banks will have to implement the single-digit interest rate on the SME sector as there are many small and medium entrepreneurs.
They will have to fix 6 percent interest rate for both the government funds and for deposits that would be taken from general clients, he added.
On December 30 last year, Finance Minister AHM Mustafa Kamal said the government had earlier taken a decision to implement the single-digit interest rate only for the industrial sector.
But now it would be for all sectors except credit cards.
The prime minister wanted the single-digit interest rate within the next two months but banks have sought an additional month, he told reporters after a meeting with private banks’ sponsors and managing directors at the headquarters of the Bangladesh Association of Banks (BAB).
The single-digit interest rate will be applicable for all fresh and old loans, Kamal said. He said the government would provide support to banks for a while to tide them over.
For instance, 50 percent of the government funds will be kept in private banks from now on. Previously, they were deposited with state banks.
The fund will be kept at 5.5 percent interest rate in state-run banks and at 6 percent in private banks, Kamal said, adding that the private banks would get funds in line with their paid-up capital.
“No bank will be allowed to take deposit beyond six percent.”
At the bankers’ meeting the BB also requested banks not to withdraw their funds from non-bank financial institutions all at the same time as the latter were now facing different types of problems, Islam said.
At the end of September, the total default loans in NBFIs amounted to Tk 6,838 crore, up 25.23 percent from six months earlier, according to data from the central bank.
On September 30 Rupali Bank alleged that 10 NBFIs have failed to pay back its funds amounting to Tk 933 crore, according to BB documents.
The bank has repeatedly asked them to repay the money, but they were unable to. Subsequently, the state-run bank sought the central bank’s intervention.