The central bank has decided to impose a 4 per cent penal interest on the banks' overdue amount of loans made from its Export Development Fund (EDF).

In 2017, the Bangladesh Bank issued rules on the procedures and realisation of principal and accrued interest on EDF loans.

If the loans and interests are not repaid within the deadline, the BB can debit the overdue amount from the foreign currency clearing accounts that authorised dealer banks maintain with the Bangladesh Bank.

In a circular today, the BB said it is observed that EDF loans are not being realised in accordance with instructions.

In view of the situation, it has been decided that penal interest, or compensation in the case of shariah-based banking, will be charged by the BB to ADs at 4 per cent per annum above the prevailing interest rate on the overdue amount of EDF loans for the delayed period.

The BB asked ADs to submit a debit authority for realising the principal and accrued interest, including penal interest, at the time of application for the EDF loan.

A debit authority gives an individual or company permission to take funds directly from someone's bank account.

Currently, the volume of the EDF is $6 billion and the interest rate on the loans made from the fund is 4.5 per cent.

Established in 1989, the EDF facilitates access to financing in foreign exchange for input procurements by manufacturer-exporters. AD banks can borrow US dollar funds from the EDF against their foreign currency loans to manufacturer-exporters.