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Taking tough actions against loan defaulters is not enough for saving businesses

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15th-Sep-2018       
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THE Parliamentary Standing Committee on Ministry of Finance has recommended to bring down the interest rate in the banks to single digit. The JS body made the call at a time when Prime Minister's directive, Finance Minister's announcement and central bank's order went futile in this regard.   
There is widespread allegation that government's decision to cut the interest rate on lending to 9% and that on deposits to 6% has not yet properly followed by the commercial banks. The new interest rates were scheduled to go into effect from July 1 this year. But disobeying the order, the banks are now allegedly applying different techniques to dodge it. For the last several years, the private banks were lending at between 14% and 15% and their average interest rate for deposits was between 9% and 10%.
The JS body in its latest meeting has expressed worries saying that almost all commercial banks make a profit of Taka 200-250 crore per head per annum. But a number of small and mid-level industries were forced to shut down due to high lending interest rate. Most alarmingly, about 89% small RMG factories are now bearing the brunt of high interest loans.
According to media reports the private commercial banks those have taken step to reduce the lending rate to 9%, they are also applying different charges, including 1-1.5% processing fee, 1% deposit registration fee, 1% servicing fee, 1-2% supervising agency fee and 1% closing fee for advance payment. It is clear that the clients have to pay 12% -13% interest to the banks. Whereas, these banks are showing 9% interest rate in their official papers to the central bank. They are showing 4-9% average interest rate referring to some earlier privileged sectors, including agriculture, spice export and women entrepreneurs apparently to make their statement justified.  
At present, the deposit in banks has been declining fast. The central bank data showed that depositors have withdrawn several thousand crores of taka between December last year and June, 2018. The central bank's data showed that more than 100 million account holders deposit money in 57 banks while the bank directors are mainly conducting their business with the money of these small depositors.
We know, the main reason behind the high lending interest rate is large amount of bad loans. Most of the banks are now facing this problem as they are unable to get back their money. The Finance Ministry and Bangladesh Bank must focus their attention on this burning issue. Government should take tough action against the big loan defaulters. Only central bank's circular would not bring any good result.
We have to insist that to be tough indiscriminately against the loan defaulters cannot be the right policy. In the interest of the economy, a distinction has to be made between fraudulent looters and genuine loan defaulters. Unthinking measures cannot be good for the country's economy.

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