BB lifts NBFIs' rate cap

The existing ceiling on lending and deposit rates of the non-bank financial institutions (NBFIs) has been withdrawn, giving a sigh of relief to these institutions.
The Bangladesh Bank (BB), in a circular on Tuesday, issued a guideline regarding a new lending-rate mechanism - based on the benchmark reference rate, which will be effective from July 1.
Under the new rate mechanism, the central bank will fix a reference rate based on the moving average of 182-day treasury bill that will be called SMART (Six-Month Moving Average Rate of Treasury Bill). The BB will publish the SMART Index on the first working day of each month on its website.
The BB said the NBFIs can fix their interest rates against deposit by adding maximum two percentage points with the SMART Index. In terms of lending, the NBFIs can add maximum 5.0 percentage points with the market-driven benchmark reference rate.
It means, the depositors will get more than 9.0 per cent interest against their investment in the NBFIs, while the cost of lending from these institutions will go over 12 per cent, as the six-month moving average of the risk-free government securities up to May is 7.17 per cent.
Currently, the ceiling for deposit and lending is 7.0 per cent and 11 per cent respectively for the NBFIs.
Regarding personal and auto loans under CMSME financing and consumer credit, they can impose maximum 1.0 per cent supervision charge in addition to the new lending rate, and the supervision charge can be imposed once a year, the circular added.
Seeking anonymity, a BB official said the NBFIs have long been demanding withdrawal of the existing cap on deposit and lending rates, as it has been affecting their profits.
"I think the NBFIs will have a sigh of relief, as the (existing) ceiling will be ineffective from July 1."
It was one of the suggestions of the International Monetary Fund (IMF) for giving its US$ 4.70 billion loan to Bangladesh, he added.
The central bank also instructed the Islamic banks to calculate their profits according to the same rules.
When contacted, Irteza Ahmed Khan, Managing Director and CEO of Strategic Finance & Investments Limited (SFIL), hailed the BB's move for the NBFIs, as it introduced SMART - a market-based interest rate benchmark system for deposits and loans.
The BB guideline clearly stated the maximum rates for the NBFIs' deposit and lending, which would bring discipline and transparency in the market, and can be easily tracked by consumers through the BB-published monthly rates.
It will help to resolve the problem regarding deposit to lending gap, as it has now increased to 5.0 per cent comparing to the previous 4.0 per cent.
Moreover, 1.0 per cent annual supervision charge has been introduced for the CMSMEs, consumer finance and auto loan products, which will now increase the overall yield onwards, he added.

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