Deposit rate of banks has dramatically plummeted recently as banks have got huge idle money. Due to fall of interest rate, small depositors who are solely depended on bank’s interest are badly affected as they have no alternative to invest other than depositing in banks.

Now deposit rate is hovering around 5% and inflation rate is 6%. So deposit rate is well below the inflation rate which means depositors practically having insignificant or no return against theirs deposit money. Meanwhile government imposition of various taxes has reduced expected return.

Due to fall of interest rate small investors are buying government savings certificates which bear high yield.  The government has already sold savings instruments above the projection in this fiscal year. Consequently, the government reduced savings certificates rates and levied taxes on interest income.  

Against this backdrop, the regulatory authority has instructed all the commercial banks to cut down non-performing loan and administrative cost.

 Aim of this move is to narrower the gap of interest spread. Bank has to earmark huge chunk of money as provisions against their non-performing loans which has a negative impact on interest rate shrink. Bangladesh bank has warned the scheduled banks to lower of classified loans and high administrative costs. Moreover, Bangladesh bank easing of foreign currency loans for local companies helped to local banks stagnant of ample idle money. Foreign currency loan interest rate is minimal compared to the domestic loans. So, local well-known companies are having credit line from foreign banks. In this dilemmatic situation, the regulatory authority should come forward with a more inclusive approach so that interest of depositors, banks and borrowers is protected.

 Mohammad Zonaed Emran, MNC Banking Unit, Mutual Trust Bank Ltd