Changes in NBFIs’ deposit, lending rates in the offing

The Bangladesh Bank has agreed in principle to change the interest rates on both deposits and lending of non-banking financial institutions (NBFIs).

From now on, the interest rate on one-year term deposits of the customers of the institutions will be a maximum of 8% and at the same time, they will be able to disburse loans at up to a maximum of 12%, according to sources in the central bank.

The decision was made at a meeting of the managing directors (MDs) of financial institutions with central bank Governor Fazle Kabir on Tuesday.

According to the Bangladesh Bank sources, the money market regulator will issue a circular in this regard in the next few days.

Earlier on 18 April, the central bank issued a circular fixing maximum interest at 7% for deposits and 11% for lending by the financial institutions. And it said the circular would be effective from 1 July.

However, after one month and eight days, the central bank has taken a policy decision to change the rates of deposits and lending.

The Bangladesh Leasing and Finance Companies Association (BLFCA) had already applied for a change in the rates.

The central bank also said in the circular that interest rates on deposits collected by NBFIs before the previous directive came into effect would be fixed as per the new directive after the expiry of their current term.

Earlier on 1 April 2020, the central bank set a maximum interest rate of 9% on all bank loans and a maximum of 6% on deposits, except for credit cards.

However, many non-bank financial institutions have been disbursing loans at 18-20% due to the non-fixing of interest rates. As a result, there is a huge gap between the interest rates of banks and the NBFIs.

Mominul Islam, chairman of BLFCA and managing director of IPDC Finance Limited, told The Business Standard, "I have presented to the central bank governor the rationale for changing the interest rates on loans and deposits. The governor has agreed in principle to increase the interest rate on deposits and loans to 8% and 12%, respectively. The central bank also said that it would be made public in a circular in the next few days."

"The governor has suggested several other points. He also said that the MDs of their respective institutions should be very careful so that there are no irregularities in the NBFIs," he added.

Sirajul Islam, spokesperson and executive director of the central bank, said financial institutions had applied for a change in interest rates on loans and deposits. The governor said in a meeting with the managing directors of the institutions on Tuesday that they would review the matter.

"The earlier decision on capping the deposit and lending rates was made at the board meeting. This issue will also be raised in the board again. A circular will be issued with the consent of the board," he added.