NBFIs urge BB to revisit interest cap

The liquidity shortfall mainly caused by interest caps set by the central bank two weeks back puts the non-banking financial institution (NBFI) sector in a tight corner, according to nonbank lenders.

They have urged the Bangladesh Bank to set the interest rate cap at a rational level taking the present situation into account.

On July 25, Bangladesh Leasing and Finance Companies Association (BLFCA), a forum of top executives of NBFIs, wrote to the BB about the issue citing that they were going through difficulties to lure depositors at the 7 per cent interest rate capped by the BB.

In the letter, the BLFCA proposed to set the deposit rate at inflation plus 2. 5 per cent and lending rate at inflation rate plus 6.5 percent for non-banks.

The overall inflation rate stood at 7.48 per cent in July, as per the latest data from the Bangladesh Bureau of Statistics.

Considering the inflation rate, the proposed deposit rate would be at 9.98 per cent and the lending rate at 13.98 per cent, said the letter.

The BLFCA also called for fixing interest rate at 20 per cent against nano loans (maximum of Tk 2 lakh) and credit cards.

It also demanded to receive credits at a maximum of 9 per cent from the commercial banks.

In April this year, the BB set interest rates on deposits at 7 per cent and loans at 11 per cent for the NBFI sector, which was made effective from July 1 this year.

From April 2020, the BB fixed the interest rate on all types of loans, except credit cards, at 9 per cent for banks—the move which drew strong criticism from the country’s economists and bankers.

BLFCA Chairman and IPDC Finance Managing Director Mominul Islam told The Business Post, “The NBFI sector is now facing liquidity shortage as they are not getting deposits at the 7 per cent interest rate.”

He said that if the country’s inflation rate exceeds more than the interest rate, the depositors are not interested in parking money. The BLFCA is going to organise a meeting to discuss the issue among its members on Sunday (today).

The organisation also planned to sit down soon with the new BB Governor Abdur Rouf Talukder on the issue.

The BLFCA chairman said, “We proposed the BB to set the deposit rate adjusting the inflation rate so that the interest rate needs not to be revised upward and downward frequently as the inflation rate is erratic now.”

Industrial and Infrastructure Development Finance Company (IIDFC) Managing Director Golam Sarwar Bhuiyan also said, “It is very difficult for most financial institutions to mobilize deposits at 7 per cent interest rate.

Particularly, financially weak and problematic NBFIs have been facing a liquidity crisis due to the capped deposit rate.

However, officials of the central bank said that before capping deposit rates, most of the NBFIs were involved in unethical competition in mobilizing deposits.

The BB imposed penalties on several NBFIs as they were luring depositors by offering higher interest rates through texts, according to the BB officials.

Irregularities and scams have made some of NBFIs financially weak and operationally unsound, bringing mistrust to the depositors. According to the BB data, bad loans of 34 NBFIs stood at Tk 1,3016 crore as of December last year, accounting for 19.33 per cent of the sector’s total outstanding loans of Tk 6,7354 crore.

The NBFI sector usually mobilizes around 50 percent of its funds from the banks as loans and the rest 50 percent of the funds from the client’s deposits and bonds.