Due to high inflation on one hand and low interest rates on deposits, many of the depositors are not interested in keeping their money in the bank. Again, the government and private sector have increased their loans and there has been a shortage of liquidity in the banks. And to meet this shortfall, there is a sick competition in the banking and financial sector to collect deposits. Some weak banks are offering interest upto 13-14 percent maximum. Taking such high interest deposits, the institution has to give loans at least 16-17 percent interest as per existing provisions.
Besides, some weak non-bank financial institutions are offering maximum interest of 17-18 percent to get deposits. In that case, the loan should be given at 20-21 percent interest. Due to this unequal competition, the loan interest is also increasing. Borrowers are in trouble. There is no guarantee whether this high interest money will be returned or not, the concerned people fear.
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According to them, as many irregularities have happened in the past, it has been seen that deposits were taken on attractive offers and both interest and principal were lost. In other words, if you take a deposit with unusual interest like this, there is no interest and there is no hope of getting the principal back.
It is known that on the first day of the new year (year 2024), the interest rate of bank loans in the country has increased to 11.89 percent. This rate was the highest 11.47 percent at the end of 2023. As the interest rate on government loans increases, so does the interest rate on people’s loans. Because, since last July, the interest rate of bank loans given to ordinary customers is being determined in relation to the interest rate of government loans.
If asked, the former governor of Bangladesh Bank. Saleh Uddin Ahmed said, to reduce inflation, interest rates on deposits and loans are increasing, it is right. It can go upto 12-13 maximum. But if you do business with 17-18 percent interest deposits, that business will not survive. And if it is applied to a long term home loan then the borrower knows he will die.
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He said, depositors should be careful. You can’t just walk away if someone makes an offer. It should be seen how the bank or financial institution is. Unchecked deposits are dangerous.
Bank sector stakeholders say, if this happens, it will be a big ominous signal. There will be robbery with high interest deposits. There is no such business in the country that can pay this deposit.
On inquiry, it was revealed that a weak fourth generation bank offered 13 percent interest on 10-year term deposits. Besides, a non-bank financial institution is taking one-year term deposits at 12 percent. If the amount of deposit is above Rs.1 crore, the interest rate will be 13 percent. In this way, if the amount and duration of money increase, the interest rate has increased up to 14, 15, 16, 17, 18 percent. This is not a formal offer. These offers are made from person to person in the strictest confidence. Sometimes these attractive offers are given through text messages.
Meanwhile, the official interest rate on bank loans has increased to over 13 percent. This is the highest interest rate on loans since the 9 percent rate was lifted last July. Last February too, the highest interest rate on bank loans was 12.43 percent. It is increasing to 13.11 percent in March.
Following the Central Bank’s new method of determining loan interest, the loan interest is now increasing every month. Borrowers of banks including businessmen, industrialists are in trouble. Because if you go to take a new bank loan, you have to calculate more interest. As a result, the cost of business is also increasing.
On the other hand, Bangladesh Bank has made some changes in the method of determining the interest rate due to the high increase in loan interest. At present, the base rate of loan interest is determined by the ‘Six Months Moving Average Rate of Treasury Bill’ or SMART method. An additional 3.75 percent interest is added to it. The banks determine the final interest rate of the loan. The rise in smart rates in March has reined in the added interest somewhat.
According to Bangladesh Bank, an additional 3.5 percent interest will be added to the smart rate in March. Earlier 3.75 percent was added. In case of banks, there is a ceiling only on loans, but in non-banking financial institutions, there is also a ceiling on the interest rate on deposits. These institutions will be able to collect deposits by adding a maximum interest of 2.50 percent with Smart. Non-Banking Financial Institutions (NBFIs) can charge interest against loans by adding margin or interest at a maximum rate of 5.50 per cent with the ‘smart’ rate. Accordingly, their maximum interest rate on loans in March will be 15.11 percent and 12.11 percent on deposits, which was 14.43 percent and 11.43 percent on deposits in February.
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Now the loan interest rate is determined based on the method known as ‘SMART’ or ‘SMART’ or ‘SMART’ or Six Month Moving Average Rate of Treasury Bills. Bangladesh Bank informs this rate at the beginning of every month.
According to Bangladesh Bank, the smart interest rate was 7.10 percent in the first month of the current financial year, i.e. June, which increased to 7.72 percent in November. It further increased to 8.14 percent in December. Banks can add up to 3.75 percent interest with smart interest rates. As a result, the interest rate has increased to 11.89 percent. Most banks have been waiting a while to fix interest rates, but are now changing it. Because the loan interest rate has increased from 9 percent and is touching almost 12 percent.
Apart from this, banks can add a maximum interest rate of 2.75 percent to the smart interest rate to determine the interest rate on pre-shipment export loans and agriculture and rural loans. An additional 1 percent service charge can also be levied against SME loans.
The ‘smart’ interest rate is calculated by taking the average interest rate on Treasury bills and bonds every six months. At the end of every month or on the first day of the month, Bangladesh Bank informs the smart interest rate, which applies to new loans disbursed in the following month. Accordingly, the outgoing December smart interest rate will be applicable for the month of January. However, the interest rate cannot be changed at the customer level every month.
By increasing the loan interest rate, the banks are also increasing the deposit interest rate. Again due to liquidity crunch, some banks are taking deposits at high interest rates, they are even raising funds at 12 percent interest. Meanwhile, due to the increase in interest rates on deposits, the tendency to deposit the money kept at home in the bank has increased. However, the growth of loans is still higher than that of deposits. As a result, there is a cash crisis in the bank.
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According to the data of Bangladesh Bank, the amount of currency outside the bank was Tk 2 lakh 91 thousand 913 crore last June, which decreased to Tk 2 lakh 45 thousand 943 crore in October. Deposits in banks have increased by reducing the amount of money outside the banking system. Last June, the amount of deposits in banks was Tk 15 lakh 95 thousand 254 crore, which increased to Tk 16 lakh 36 thousand 592 crore in October. And in June, the loan amount was 15 lakh 70 thousand 439 crore taka, which increased to 16 lakh 1 thousand 435 crore taka in October.
The six-month average interest rate (smart rate) on 182-day treasury bills in July, the first month of the current fiscal year, was 7.10 percent, 7.14 percent in August, and increased to 7.20 percent in September, 7.43 percent in October, 7.72 percent in November, At 8.14 per cent in December, it was 8.68 per cent in January and lastly in February the smart rate rose by almost one per cent to 9.61 per cent.
