Non-banks offer higher rates for deposits

When banks have slashed deposit rates to as low as 4 percent amid the declining demand for money, some non-bank financial institutions (NBFIs) offer “unsustainably” higher rates to attract deposits.

For example, Reliance Finance gives 10.75 percent interest for one-year deposits, while 10.25 percent and 9.75 percent for half-yearly and quarterly deposits.

The company also attracts clients with rates that can double their money in only six years.

“Rates vary depending on the credibility of the institutions. Depositors want more interest from a relatively less credible company,” said Asad Khan, managing director of Prime Finance.

Prime Finance offers highest 8.66 percent interest for deposits with a two-year tenure in the individual category, while the rate is 8 percent for banks and government agencies.

“An institution needs to take high-cost deposits to ensure liquidity as per regulatory requirements,” Khan said, explaining why some non-banks are offering higher rates for deposits.

Reliance Finance is not alone; some other non-banks also offer higher rates for deposits.

The rate is 10 percent at Premier Leasing and Finance for one-year deposits and 9.50 percent for half-yearly deposits.

International Leasing and Finance also offers a 10 percent interest rate for one-year deposits.

Clients will see their money double in just five years and nine months if they deposit with People's Leasing and Financial Services.

BIFC and First Finance also offer 10 percent interest rates for deposits.

Asaduzzaman Khan, managing director of IIDFC, expressed doubts over the sustainability of the business with such high costs of funds, as many lenders cannot invest their money even at 10 percent.

“Cost of funds (deposits) at 10.75 percent is not sustainable at the moment. I have failed to attract a client even by offering 9.5 percent for a loan,” he said.

Khan said IIDFC now offers maximum 9.5 percent for fixed deposit, which will go down further next month. In many cases, he said, IIDFC is discouraging fresh deposits.

Mafizuddin Sarker, chairman of Bangladesh Leasing and Finance Companies Association and managing director of BD Finance, sees another reason why some non-banks collect high-cost deposits.

“Many banks do not want to deposit their money with troubled NBFIs. Even these institutions do not get loans from the call money market,” Sarker said.

Jalal Uddin, managing director of Reliance Finance, admitted they are taking high-cost deposits. But he said the rate will go down next month.