The high interest rate remains in the banking sector due to the default loan, said Toufic Ahmad Choudhury, former director general of Bangladesh Institute of Bank Management (BIBM).

"Higher interest rate is not good for investment. The government is trying to reduce the rate. But the higher interest rate is not coming from the higher cost of fund or management cost. It is because of higher default loans," said Choudhury.

"So, please try to reduce default loan to reduce the interest rate," he said in a dialogue on "Current Budget and Inclusive Development" at Shamannay's conference room in Dhaka.

He said the government has planned to punish willful loan defaulters. "But, how the willful defaulters will be determined? he raised the question.

"If the willful defaulters are determined politically, it would not give the expected result," said the former BIMB chief.

On this ground, he has recommended opening a loan work-out department in every bank who will assess the defaulters' reasons and report to the central bank.

Speaking on the programme, Atiur Rahman, also a former governor of the Bangladesh Bank, said there is an instability in the banking sector which is acknowledged by the finance minister and some measures have been taken in the budget.

"Financial sector is the heart of an economy which has been suffering from ups and downs of the pressure in recent time. So, the time has come to detect the problems properly and cure it," he added.