Bangladesh Bank caps interest rates for NBFIs

Bangladesh Bank has capped interest rates on deposits and lending of non-bank financial institutions (NBFIs) in a bid to bring discipline to the market.

BB took the decision after it found that some NBFIs have been collecting deposits at higher rates which are also pushing up borrowing costs.

Accordingly, BB has set the highest celling for deposits at 7 percent and 11 percent for lending.

The new ceilings will come into effect from July 1, said a central bank circular on Monday.

However, the instruction will not be applicable for deposits collected before the notice.

Currently, there are 34 NBFIs operating in Bangladesh. Most of these are financially struggling, while some are even on the verge of collapse. To get out of their financial fallout, some NBFIs try to allure new depositors by offering higher interests.

Such moves increase the cost of funds for NBFIs and lending rates. This reduces the repayment capability of the borrowers, bringing adverse effects to the economy.

Ceilings fixed by the central bank aim to bring a stop to such practice.