The central bank has issued show-cause notices on three commercial banks for their alleged violation of announced interest rates on deposit, officials said Tuesday.

The Bangladesh Bank (BB) has also asked the managing directors and chief executive officers of these banks to explain within a week their positions and why disciplinary action will not be taken against them under the existing Bank Company Act.

The BB's inspection teams are now investigating into allegations of offering higher interest rates on deposits contrary to announcement by three other private commercial banks (PCBs).

"We'll take the next course of action in line with the existing Bank Company Act after receiving replies from the CEOs of the banks within the stipulated timeframe," an executive director of the BB told the FE.

The central bank issued the notice to the MDs of the three commercial banks on the basis of its probe report.

The central bank has conducted the inspections acting on a tip off, the BB executive director said without elaborating.

Currently, four teams are probing into allegations of offering higher interest rates on deposit by the PCBs through violating their announced interest rates.

The commercial banks earlier this month announced their interest rates on deposit maximum at 12.50 per cent in line with the Association of Bankers, Bangladesh (ABB) decision.

"It has been reported that a few banks offered higher interest rates on deposit ranging between 13 per cent and 15 per cent to attract depositors from both public and private sectors to their banks from other ones," another BB official said.

He also said the central bank has advised all concerned to act rationally in fixing both deposit and lending rates to avoid any 'unhealthy' competition in the country's financial sector.

On February 7 last, the ABB called upon its member-banks to re-fix the deposit at a maximum of 12.50 per cent and lending rate at a maximum of 15.50 per cent.

The ABB's decision followed the withdrawal of capping of interest rates by the central bank in early January, 2012. Before that, the central bank had enforced on April 19, 2009, the capping of lending rate at 13 per cent in five specific areas to help mitigate the impact of the then global economic meltdown.

A deposit brokers' class has already been created in the financial sector to deal with cash money from depositors to the commercial banks and non-banking financial institutions (NBFIs), according to some senior bankers.

The deposit brokers' have negotiated with the banks and NBFIs about the deposit interest rate keeping a substantial commission from them, they added.

They also raised a question about higher rates on deposit particularly of the government funds, saying that who are getting benefit from the higher interest rates?

Financial Express/Bangladesh/ 29th Feb 2012