Bangladesh Bank on Thursday cut the rate of interest on farm loans to 9 per cent from 10 per cent as the rates of interest on banks’ other deposit and lending products have been sliding in recent months.
The central bank issued a circular to managing directors and chief executive officers of all banks informing them that it reduced the interest rate for farm loans considering the agriculture sector as a priority sector.
The latest rate cut by the BB will help farmers to get agriculture loans with a lower rate, which will boost the overall farm loan disbursement, the circular said.
The BB had cut the rate of interest on farm loans from 13 per cent to 11 per cent on January 1, 2015 and it lowered the rate to 10 per cent again on June 14, 2016.
The majority of banks are now charging interest rates between 8 per cent and 11 per cent for their different types of consumer loans against the backdrop of slower trend in loan disbursement to the industrial sector amid dull business situation in the country.
The weighted average rates for both lending and deposit products have been sliding for the last two years as the businesses are now unwilling to set up new industrial units and expand the existing ones, a BB official told New Age on Thursday.
According to the latest BB data, the weighted average interest rate for lending in the banking sector declined to 9.62 per cent in April, 2017 from 10.64 per cent in the same month a year ago.
Due to the lower loan disbursement by banks, excess liquidity has significantly increased in the banking sector that has compelled them (banks) to cut the rates of interest on their deposit products, the official said.
The BB data showed that the weighted average interest rate for deposit products decreased to 4.97 per cent in April from 5.77 per cent in the same month of 2016.
Banks have focused on increasing the farm loan disbursement in the last few years as the rate is higher than that of the majority of lending products being offered by them (banks).
Banks distributed 98.26 per cent of their annual farm loan disbursement target amount in the first 10 months (July-April) of this fiscal year of 2016-17.
They disbursed Tk 17,244.69 crore in July-April, while the annual disbursement target is Tk 17,550 crore, according to the latest BB data.
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