Stimulus Funds: BB steps in as banks charge higher interest

The central bank yesterday asked banks not to impose more than 4.5 per cent interest rate on the funds disbursed from the stimulus package for the large borrowers in the industrial and service sectors.

Some banks had imposed 9 per cent interest rate on the borrowers just after they gave out the loans under the package worth Tk 40,000 crore in violation of a central bank instruction, the Bangladesh Bank said in a notice.

The central bank introduced a Tk 30,000 crore stimulus package on April 12 last year as part of its move to shield the industrial and service sectors from the business slowdown brought on by the coronavirus pandemic.

The volume of the stimulus package was extended to Tk 40,000 crore in phases.

The end-users are supposed to get the loans at 4.5 per cent. Banks are allowed to receive an interest rate subsidy of 4.5 per cent from the central bank on the loans. 

But some lenders are charging 9 per cent, creating a financial loss for the businesses.

Against the backdrop, the central bank asked the errant banks to explain why they had charged the higher interest than the rate set by the BB.

In response, the lenders said they would adjust the rate after receiving the subsidy from the government, a BB official said.

But the central bank rejected the explanation, asking them to follow the interest rate ceiling of 4.5 per cent.

"The latest initiative of the central bank is undoubtedly a good move as it will help businesses recover from the ongoing crisis," said Rizwan Rahman, president of the Dhaka Chamber of Commerce and Industry.

Banks should maintain separate books to calculate the interest rate as per the central bank's instruction, he said.

In some cases, a good number of banks are charging 1-1.50 per cent more than the rate set by the central bank, the entrepreneur said.

"The central bank should strongly monitor the issue."

Banks should follow the central bank instruction all the time, said Syed Mahbubur Rahman, managing director of Mutual Trust Bank.

Lenders should maintain the interest rate ceiling to help the economy make a turnaround from the pandemic in a speedy manner, said Rahman, also a former chairman of the Association of Bankers, Bangladesh, a forum of managing directors of banks.

"The central bank will take punitive measures against the errant banks if they continue charging a higher rate," said a central banker. 

The pandemic-hit affected clients who have already borrowed from banks can take a maximum of 30 per cent loans from their existing credit limit.

The most affected borrowers will be given priority while disbursing the loans from the fund, and banks will provide the loans from their coffer.  

Banks have so far disbursed Tk 31,000 crore of the stimulus package.