The central bank has slashed maximum interest ceiling on agricultural credits by 2.0 percentage points in view of a downturn in both lending and deposit rates, officials said.
Under the revised provisions, the banks are allowed to charge maximum 11 per cent interest on agricultural credits instead of 13 per cent.
The revised interest rate on farm credits will come into effect from January 1, 2015, according to a circular issued by the Bangladesh Bank (BB) Sunday.
"We've reduced the interest on farm credits aiming to facilitate agricultural activities across the country," a BB senior official told the FE.
He also expressed the hope that the revised interest rate would help increase disbursement of the agricultural loans.
Earlier on April 19, 2009, the BB asked the commercial banks to enforce the cap on lending rate at 13 per cent in five specific areas to help mitigate the impact of the then global economic meltdown.
The five areas for which a ceiling on lending rate was fixed at the time were: agriculture, term loan and working capital to large and medium-scale industries, housing, and trade financing.
On January 04, 2012, the BB withdrew the cap on lending rate in all sectors and items save two: agriculture and export.
This step was taken to facilitate country's overall economic growth through boosting investment in different sectors.
Credits at a reduced rate of interest -- 7.0 per cent -- are being provided to all areas of exports since January 2004, another BB official said. It will remain unchanged.
With a view to establishing a market-oriented financial system under the Financial Sector Reforms Programme (FSRP), the administered interest-rate regime was earlier abolished to give the banks full freedom for selection and management of their credit portfolios.
The central bank introduced in 1989 a flexible interest-rate regime through issuance of a circular in line with the FSRP.
Under the FSRP, the banks are free to charge or fix their deposit and lending rates, excepting the rate of interest on export credits.
siddique.islam@gmail.com
