Public entities to get lower deposit rates from govt banks

In a circular issued yesterday, the Bangladesh Bank asked the private banks to provide 6 percent and state-owned banks to provide 5.5 percent interest on government organisations' deposits as per the finance ministry's directive.

The Financial Institution Division under the Ministry of Finance issued a directive in this regard on January 19 this year.

The strategy is part of the government's move to lower lending rates to 9 percent from April 1 amid businessmen's longtime complaints that banks charge overwhelmingly high on loans that make doing business costly.

The Bangladesh Bank circular also said autonomous and semi-autonomous bodies can deposit highest 50 percent of their funds allocated under the Annual Development Programme with private banks and non-bank financial institutions.

After taking charge of the finance ministry last year, AHM Mustafa Kamal promised to implement single digit interest rates but could not do it and changed the deadline for implementing it several times.

Finally, on December 30 last year, he expressed his strong determination to implement single digit interest rate from April 1 this year.

If the government's decision is implemented, banks will bring down lending rates at a single-digit, even if it means losses for them, said Md Nazrul Islam Mazumder, chairman of Bangladesh Association of Banks (BAB).

Earlier in June 2018, on behalf of the BAB, Nazrul announced bringing down interest rate on deposits to 6 percent and lending rate to 9 percent from July 1 that year.

The move to bring down deposit interest rates came weeks after the government cut cash reserve ratio by one percentage point to 5.5 percent against the promise of bank sponsors that they will bring down interest rates to a single digit.

Since then, the Bangladesh Bank and the government repeatedly instructed the banks to fulfil their promises but most of the banks did not do it amid a liquidity crisis in the sector.

But this time, banks have started to drop deposit interest from February 1 to achieve the target of lending at 9 percent from April 1.