Banks asked to open separate account for interest subsidy

The Bangladesh Bank has instructed banks to maintain a separate account for interests to be paid by the government – in the form of subsidies – against loans availed under the Covid-19 stimulus package for industries and the service sector.

Loans taken out by clients under the package come with a 9% interest rate. Borrowers will pay half the interest and the government will subsidise the other half to banks.

A circular of the Bangladesh Bank's Banking Regulation and Policy Department on Tuesday said some banks were imposing the whole 9% interest on loans on clients, causing them to incur losses.

"This seems to be the case when you read the circular but in reality, no bank is charging higher interests from clients," Abu Farah Md Naser, executive director of the central bank, told The Business Standard.

Many clients were thinking that they themselves would have to pay 9% interest as banks were keeping the clients' interests and the government subsidies in the same account, he explained.

The central bank official said, "To remove this confusion, the circular says clients should be charged 4.5% interest on their loans and there should be a separate account for the remaining 4.5% that will come as subsidies."

The circular said banks would charge clients the whole amount (9%) if they did not repay loans and interests within the stipulated time.

On 12 April 2020, the Banking Regulation and Policy Department published a policy on the incentive package for industries and the services sector, which said the validity of the package would be three years.

The policy said a client would get interest subsidies against loans under the package for a year. However, defaulters and clients who earlier availed loan rescheduling facilities thrice would not get loans from the package.

On 5 April last year, to help the economy recover from the pandemic fallout, Prime Minister Sheikh Hasina announced a Tk30,000 crore incentive package as working capital for industries and the services sector.

The package was expanded by Tk3,000 crore in the first phase due to increased demand for loans. Later, another Tk7,000 crore was added, causing the size of the package to stand at Tk40,000 crore in October.

The loan disbursement rate of this package is higher than that of all others. In seven months until November last year, 85% of the package was disbursed.