BB confiscates banks’ interest income for Apr, May

The central bank yesterday directed banks to transfer all interest accrued or to be accrued between April 1 and May 31 this year from all of their loans to an interest-free blocked account, in what can be construed as its boldest move yet amid the pandemic.

A blocked account refers to an account that does not allow for the indiscriminate withdrawal but instead has certain restrictions or limitations on when, how much, and by who, capital can be withdrawn.

Besides, banks are not allowed to transfer the interest or profits deposited in the blocked account of the borrowers to lenders' income book until further notice, according to a Bangladesh Bank notice.

This is a great move to help the borrowers during the ongoing fallout as banks are not permitted to impose compound interest on the total outstanding loans of the businesses, said a BB official.

He thinks that the creation of the block account means borrowers might get further facilities in the days ahead.

"The central bank may either ask banks to waive the whole amount of interest in the block accounts or adjust the amount with their principal amount of loans," he said.

The central bank is yet to take any decision to this end.

The government earlier assured businesses to take initiative to reduce their burden on high interest amid ongoing economic fallout resulting from the coronavirus pandemic.     

If interests or profits have already been shown as incomes, it has to be adjusted through reverse entry.

A decision on adjusting the interest or profits transferred to the blocked account will be issued later, the circular said.

In another notice, the central bank has doubled the size of the fund of the refinancing scheme that bankrolls eco-friendly products, initiatives and projects.

The fund -- Refinance Scheme for Green Products/Initiatives/Project -- would stand at Tk 400 crore from Tk 200 crore now as the demand for the funds for environment-friendly initiatives is growing.

The scheme can only be used in case of term loans and can't be used to pay consultant fee, meet repairing and maintenance expenditure and be used as working capital.

Similarly, the refinancing wouldn't go past the credit ceiling set by the BB for the products and projects.

No defaulters will be eligible for the scheme. Projects that are already funded by the BB, development partners and other sources would not qualify for the financing, the notice said. 

Under the scheme, banks would get the funds at the bank rate, which is 5 per cent.

At the borrowers' level, the interest rate for the loans with the repayment period of less than five years would be a maximum 7 per cent.

The loans with payback tenures ranging between five years and eight years would carry a 7.5 per cent interest rate and that of more than eight years tenure would be 8 per cent.

This will give banks' a margin of 2 per cent, 2.5 per cent and 3 per cent respectively for the three repayment periods.

However, the margin for the loan going to the agriculture sector's solar irrigation pump would be 2 per cent as it is a priority sector for the government.

No hidden charges can be applied to any loans, the BB said. The grace period would be determined depending on the relationship between banks and clients.

The loan repayment would be on a quarterly basis and the loan and equity ratio would be 80:20.

The government and the Bangladesh Bank have unveiled a host of stimulus packages amounting Tk 95,619 crore, which is 3.5 per cent of the GDP, aimed at aiding people's purchasing power, widening social safety nets, increasing money supply and making working capital available for the industries, service sector firms and cottage industries.