3% margin to be added with SMART

Although the interest rate on bank loans is now set to be market-based, a 3 per cent margin will have to be added to the six-month average interest rate of treasury bills in determining this rate.

No higher interest rate can be fixed and the new rate will be applicable from July 1, Bangladesh Bank (BB) said in a circular on Monday. The new directives will apply to both conventional and Islamic banks.

This average interest rate will be called SMART, or Six-Months Moving Average Rate of Treasury Bill. This reference rate will be fixed based on the market-based interest rate of 182-day Treasury Bills.

BB’s Debt Management Department will publish the SMART index on BB’s website on the first working day of every month, said the circular.

At present, as per BB’s website, SMART is 7.13 per cent. So, with the 3 per cent margin added, the bank loan interest rate will be 10.13 per cent.

However, no more than a 2 per cent margin can be added to SMART for agricultural and rural loans. Also, interest rates for incentive packages or special funds will be imposed as per their policies, said the BB circular.

In the case of credit cards, it added, the instructions of the existing circular issued in this regard will be applicable. Monday’s circular also read that SMART will determine the interest rate of a month based on the rate from the previous month. For example, the SMART fixed for February should be taken into consideration to fix the interest rate for March.

CMSME and consumer loans

In the case of personal and auto loans under CMSME loan and consumer financing, an additional supervision charge of 1 per cent can be added to the mentioned interest rate. But this charge can be collected once a year.

Additional charges or compound interest rates cannot be added to this supervision charge. However, in case of loan adjustment within the year of disbursement, a supervision charge can be imposed at the rate of 1 per cent for the proportionate period.

Besides, in case of disbursement of new loans, the interest rate can be fixed for the respective month. Interest rate, whether fixed or variable in nature, shall be subject to the consent of the borrower before approving the loan.

But in the case of variable interest rates, the change will be effective every six months. For example, if the new loan is disbursed on January 1, 2024, the variable interest rate will be changeable on July 1, 2024.