High Court seeks explanation over 9% interest on loans

The High Court on Tuesday issued a rule asking the authorities concerned to explain why the Bangladesh Bank circular which set interest rate on bank loans at 9 percent would not be declared illegal.

A High Court bench of Justices Abu Taher Mohammad Saifur Rahman and Zakir Hossain asked three people including Bangladesh Bank governor and finance secretary to respond within four weeks.

On March 1, Barrister Syed Sayedul Haque Sumon filed the petition on behalf of an apprentice High Court lawyer.

The petition was first submitted to the High Court bench of Justices Tariq ul Hakim and Md Iqbal Kabir, but the bench dropped the petition from its cause list on Monday, as it did not fall under the bench's jurisdiction.

Then on Tuesday the writ was submitted in the bench of Justices Abu Taher Mohammad Saifur Rahman and Justice Zakir Hossain.

Barrister Sumon told reporters, "The circular said the 9 percent interest rate, which will take effect from April 1, would only be applicable for the banking sector. The central bank had verbally said the interest rate would be six percent for depositors, but there is no mention about it on the circular."

The lawyer said at least two crore depositors would be harmed by the central bank's decision.

"At present, interest rate on loans in the manufacturing sector is 11-14 percent. Consumer and SME loan interest rates are even higher," Barrister Sumon added.

The writ also said the Bangladesh Bank circular only mentioned the banking sector, but there was no information about the non-banking financial institutions.

This is why such institutions will get the opportunity to set the interest rate as they wish, it said.

The petition demanded that all banking and non-banking financial institutes are included in the Bangladesh Bank directive.

"Otherwise, it would be unconstitutional," said the writ.

According to the Bangladesh Bank circular, high-interest rates stand as a major hurdle to the development of the business and services sectors, including small, medium and large industries.

High interest rates will also cause an increase of production costs in the industries. Thus, products will be deprived of competitive advantage in the market.

As a result, industries, businesses and service organisations sometimes face adverse conditions, and the borrowers cannot repay the loan on time. This disrupts the loan system in the banking sector and hampers the country's economic development as a whole.