Thanks to the Bangladesh Bank for the belated step in directing the commercial banks of the country to find ways to reduce the wide gap between lending and deposit rates . But it is not always the deposit rate which affects the cost of funds in a bank. Although it has a direct link, but free money (about 20% app.) in the banking channel plays a great part in arriving at the funding cost of any bank which means actual effective funding cost of any bank is much less than the real deposit rate. Therefore, it would have been better if the equation could be made between their cost of fund and the lending rates. The spread in such circumstances would be more yawning. A spread of seven percent and above at the sweet will of the banks is too high for the entrepreneurs to do business profitably by taking bank loan, and if allowed to continue this trend will undoubtedly impede industrial development in the country.
The result of previous fiscal year's dismal growth in the industries sector is obviously in view of the above fact. Let us hope that the commercial banks will now come to their senses and realise the harm they were causing to the industry and economy of the country by keeping their lending rates unnecessarily high. Even during the last fiscal period when business activities were reported to be at its lowest ebb, the banking companies made a record profit , the lion's share of which went to a handful of large shareholders in the form of dividend, equity, reserve etc. It is evident that the activities of the banks are centred round the profiteering motives of a few large shareholders and their representative Directors in the Board. The Board of Directors should realize beside earning a reasonable dividend for the shareholders the commercial banks have a more important and bigger obligation towards economic and industrial development of the country. Unfortunately, our banks have consistently failed in this area. Despite huge liquidity in the money market and large hue and cry from the entrepreneurs to reduce the lending rates, the commercial banks did not lower their interest rates and continued with their money making business only. The contention of the BAB Chairman that it would be difficult for them to reduce the lending rates unless the interest on savings certificates and treasury bonds were slashed is not based on facts.
A few years back when under a directive from the Bangladesh Bank the banks were gradually bringing down the rates to a single digit figure, no one raised this question. Moreover, actually some banks did bring down the rates to single digit level and still they were doing business comfortably and profitably. There is no apparent direct linkage between the lending rate and the rates of government securities. After all, migration of bank depositors to government securities on better rate of return basis is not “violent”. Then why such lame excuses?
As a regulator of the economy, such action from the Bangladesh Bank was, therefore, overdue. In my opinion they along with SEC should work together closely in opening more investor friendly avenues for raising capital at a reasonable cost by the entrepreneurs to reduce their dependence on commercial banks. The incentive given by the government on issuance of ZERO coupon bonds could be cited as an example. Income from investment in ZERO coupon bonds has been made totally tax free. This incentive has attracted a number of financial institutions and private companies to raise funds by issuing such bonds at a much lesser cost than the bank loan which will cast a positive impact on the industrialisation and economic development of the country. Moreover, the investors whether private or public have shown keen interest in such bonds in view of the generous tax incentive given by the Government.
But the recent step by the Bangladesh Bank to refer to NBR before granting permission to the private companies; other than financial institutions and banks, to float ZERO coupon bonds is perhaps a wrong step. The regulators are now regulating a virtually non-existent capital and bond market with so many rules and regulations but no place to apply!