NBFIs urge BB to withdraw interest cap

The non-bank financial institutions (NBFIs) have, somewhat to no avail, requested the Bangladesh Bank (BB) to withdraw the interest rate cap as they are not getting the expected number of deposits at that rate.

Bangladesh Leasing and Finance Companies Association (BLFCA), a forum of top NBFI executives, made the appeal at a meeting with the central bank’s Governor Abdur Rouf Talukder at the BB headquarters in Dhaka’s Motijheel on Sunday.

Talking to The Business Post, BLFCA Chairman and IPDC Finance Managing Director Mominul Islam said it is very difficult to mobilise deposits at the 7 per cent interest rate capped by BB.

“We urged the BB governor to withdraw the cap but he said it won’t be possible at the moment and asked the NBFIs to improve corporate governance. The NBFI sector is now facing a liquidity shortage as it’s not getting enough deposits at the existing interest rate,” he said.

Mominul said depositors are not interested in parking money at financial institutions since the country’s inflation rate exceeded the interest rate.

In April, the BB had set interest rates on deposits at 7 per cent and loans at 11 per cent for the NBFIs, which came into effect from July 1.

Prior to that, in April 2020, the BB had fixed the interest rate on all types of loans, except credit cards, at 9 per cent for banks — drawing strong criticism from the country’s economists and bankers.

Sources, that were present at Sunday’s meeting, said BLFCA and BB officials also discussed various issues including the new loan rescheduling policy and the central bank’s recent notice about the eligibility and ineligibility criteria of an applicant seeking to become a director at an NBFI.

Mominul said BB will soon hold a meeting with the directors of NBFIs on these issues. The BB governor asked the top officials of the NBFIs to improve corporate governance as the condition of the sector has worsened.

The NBFIs’ bad loans increased by Tk 2,920 crore in the first half of 2022 due to widespread irregularities and corruption.

The total bad loans of 34 NBFIs stood at Tk 15,936.42 crore as of June 2022, accounting for 22.99 per cent of the sector’s total outstanding loans of Tk 69,331.72 crore, according to the latest BB data.