Bangladesh Bank on Wednesday introduced a base rate monitoring system for non-bank financial institutions so that they could offer a reasonable interest rate of their different products to the clients. BB governor Atiur Rahman introduced the new monitoring system at a ceremony held at the central bank headquarters in the capital in presence of top officials of theNBFIs.
BB deputy director Md Iqbal Hossain, who presented a slideshow on base rate system at the programme, said the base rate could be described as the minimum interest rate below which it was not viable for an NBFI to lend money to the clients.
Besides, the clients will be able to get loans from the NBFIs with a reasonable interest rate as the base rate will indicate the viable interest rate for the institutions, he said.
The base rate of the NBFIs will be set by counting their cost of fund, cost of CRR and SLR, cost of administration and cost of their equity capital, he said.
The base rate system may prevent undercutting in interest rates due to competition, increase the credit flow to small borrowers at a reasonable rate of interest and also prevent the NBFIs from overcharging against their customers, and safeguard the interest of low-income people, the official said.
The introduction of base rate has several benefits in the financial sector, as it promotes transparency in setting the interest rate for different products and encourages healthy competition in the economy, he said.
BB governor said that the main component of the base rate system was the cost of funds index and it would be uploaded with the central bank web site.
The banks and the NBFIs are completely free to set their structure of the interest rate under the market-oriented policy, he said.
The NBFIs will be able to set their floating interest rate easily as they will use the cost of funds as a reference rate, Atiur said.
Due to the base rate, the interest of clients will be protected and a healthy competition will be prevailing among the NBFIs, he said.
The unified base rate system will create a level-playing field to all quarters, he said.
The interest rate-setting mechanism in the base rate system, however, may not be applicable for farm loans, loans linked to different refinance schemes, staff incentive loans, and loans against fixed deposit, according to the BB guideline.
The NBFIs are required to review the base rate on a monthly basis with the approval of their respective board or the asset liability management committees as per the NBFI’s practice, the guideline said.
Since transparency in the interest rate of lending products has been a key objective, the NBFIs are required to exhibit the information on their base rate at all the branches and also on their web sites, it said.
Changes in the base rate should also be conveyed to the general public from time to time through appropriate channels, the BB guideline said.
Consolidating the monthly data of the NBFIs, the BB will prepare and publish a monthly cost of fund index on its web site which will ultimately serve as the reference rate for setting a variable interest rate for their different loan products, the guideline said.
In setting the interest rate on a new loan, the NBFIs will add a margin with the CoFI as per their evaluation of risk associated with the particular borrowers, it said.
The BB asked the NBFIs to implement the full-fledged base rate guideline from January 1, 2014.
BB deputy governor SK Sur Chowdhury said the central bank would introduce a separate base rate system for the scheduled banks.
He said that five NBFIs were yet to make up the paid-up capital amounting to Tk 100 crore till now despite the central bank directions, he said.
He asked the five NBFIs to make up their paid-up capital in the quickest possible time.
Capital adequacy ratio in the three NBFIs is now below 10 per cent and defaulted loan in the seven NBFIs crossed 10 per cent of their outstanding loans and advances which are unexpected, he said.
He asked the NBFIs concerned to take required measures to increase their CAR and to decline the classified loan.
BB deputy governor Abu Hena Mohd Razee Hassan, Nazneen Sultana, M Mahfuzur Rahman and Bangladesh Leasing and Finance Companies Association chairman Asad Khan addressed the programme.
-With New Age input
