Private Banks cap Deposit Rate at 10%

Private commercial banks (PCBs) have capped the interest rate for fixed deposit at 10 percent following the central bank's order to fix the lending rate at a maximum 13 percent, bankers said.

“Punitive actions will be taken if any bank offers more than 10 percent against a fixed deposit scheme,” said a top office bearer of Association of Bankers Bangladesh (ABB), a platform of PCBs' chief executive officers.

Actions include no transaction in call money market and keeping no deposit in those banks, he said.

Officials said ABB took the decision at a meeting on April 15, but did not disclose it on Bangladesh Bank's delay in issuing the lending rate cut circular. The BB issued the circular on Sunday.

Currently PCBs offer up to 13.50 percent for fixed deposits. A bank offered even 14 percent, the highest ever in the country, in May last year and fuelled an uneven competition among the banks.

In an interview with The Daily Star last week, Kaiser A Chowdhury, president and managing director of AB Bank, blamed the third generation banks for a spike in deposit rates.

“We set the highest rate for our three-month fixed deposit scheme at 10 percent yesterday,” said Shahjahan Bhuiyan, managing director of United Commercial Bank. The previous rate was 13 percent, he added.

The rate would be 9.75 percent for six-month scheme and 9.50 percent for one year and above, Bhuiyan, also the vice president of ABB, said.

Helal Ahmed Chowdhury, managing director of Pubali Bank, also admitted the cap of the fixed deposit rate at 10 percent.

Chowdhury however hailed the BB for allowing commercial banks to change the lending and deposit rates more than once in a month. Earlier banks could change the rates once in a month.

The government and the BB had long been asking the private banks to reduce the spread by cutting the lending rate, which was at least 14.75 percent depending on the banks. Finally the central bank forced these banks to charge a maximum 13 percent for lending to help private sector offset the impacts of global recession.

Source: The Daily Star, April 22, 2009