Damaging image sees NBFIs losing deposits

The non-bank financial institutions (NBFIs) have continued to lose deposits despite offering higher interest rates than banks as the sector clambers to regain its image tarnished by scams and irregularities.

Deposits at NBFIs stood at Tk 42,941 crore at the end of September this year, down from Tk 43,473 crore at the same time last year, Bangladesh Bank data show. Some NBFIs are still unable to pay the depositors’ money mainly due to irregularities and scams, which damaged the sector’s image, a senior central bank official said. 

“As a result, financially sound NBFIs also are facing difficulties to mobilise deposits despite offering higher interest rates than banks, which may be the reason behind the falling trend of deposit,” he added. 

Banks offer 4 to 6 per cent interest against deposits, while NBFIs provide 6 to 15 per cent interest. 

Deposits at NBFIs slightly rose in the September quarter compared to the previous quarter. The sector’s deposits were at Tk 42,753 crore at the end of June this year. 

The deposits figure was only in the private sector as public NBFIs are non-depository. 

Md Golam Sarwar Bhuiyan, managing director of the Industrial and Infrastructure Development Finance Company Limited, told The Business Post that the image crisis was one of the reasons behind the falling trend of deposit apart from the lending rate cap in banks. 

BB capped the lending rate at 9 per cent for banks but did not issue any such directive for NBFIs.

Bhuiyan explained that borrowers demand loans from NBFIs at a maximum of 9 per cent interest. “But it is not possible for us since our interest on deposits is much higher than banks,” he said.

As a result, most NBFIs released their high interest-bearing deposits, said Bhuiyan, the first vice-president of the Bangladesh Leasing and Finance Companies Association (BLFCA), a forum of high officials of NBFIs.

The sector is facing an image crisis with the ailing situation of five to six NBFIs, BLFCA Chairman Mominul Islam had said. BB data showed that 10 NBFIs held 80 per cent non-performing loans (NPLs) in this sector. A BB inspection team found massive irregularities and scams in 10 NBFIs, including People’s Leasing, International Leasing, Premier Leasing, Uttara Finance, and First Finance.

The Business Post correspondent recently visited People’s Leasing and International Leasing offices and saw many depositors waiting to withdraw their money without success.

“Now we are paying back depositors who are physically unwell and facing various diseases on humanitarian grounds,” said International Leasing managing director Mashiur Rahman (Current charge). 

The Finance Ministry in June 2019 instructed BB to shut People’s Leasing and Financial Services as it failed to repay depositors’ money despite funds maturity. This move put this sector in further crisis but the government went for restructuring the NBFI instead of liquidation.

Former BB governor Salehuddin Ahmed said that those NBFI are the pocket institutions of big industry owners. Some more rules and regulations need to be introduced in this sector to control the situation and establish good governance. 

He suggested intensifying BB monitoring of the NBFI to ensure good governance in the sector.