Interest rates on lending decreased again in June after an increase in May as commercial banks were forced to cut the rates in June against the backdrop of businesses’ persistent reluctance to borrow from banks due to a sluggish business situation in the country.
Interest rates on lending had increased in May after a 29-month fall.
The weighted average interest on lending decreased to 9.56 per cent in June from 9.66 per cent in May this year.
The banks were forced to cut the lending rates due to a sluggish credit demand from the businesspeople amid dull business for long, a BB official told New Age on Thursday.
The BB data, however, showed that the weighted average interest rate on the banks’ deposit products increased to 4.93 per cent in June from 4.84 per cent in May of 2017.
The BB official said that some banks had increased the rates of interest on their deposit products in the month as they were now trying to disburse hefty amount of loans with a view to strengthening their profit base.
He, however, termed the increase as a temporary phenomenon.
The country’s businesspeople have adopted a ‘wait and see’ approach in regards to expanding their business by taking bank loans due to the sluggish business trend, he said.
Due to the lower credit demand from the industrial sector, banks are now having huge excess liquidity that has forced them to rush to invest in government treasury bills and bonds.
The BB data showed that interest rates on all types of T-bills and bonds also dropped in recent months, as most of the banks submitted high number of bids at the auctions of the instruments to invest their idle funds.
The BB official said the banks had trimmed their interest rates on lending throughout last year to encourage entrepreneurs, but their (entrepreneurs) response was yet to reach a satisfactory level.
The BB is frequently asking the banks to disburse more credit to the SME and agriculture sectors to stimulate the private sector credit growth.
A number of banks have been disbursing consumer loans in recent times to the clients to ensure their profitability. The banks have also cut the interest rates on consumer loans to 8 per cent-11 per cent from 16 per cent-18 per cent.
The BB data showed in June the weighted average rate on lending stood at 8.66 per cent at the state-owned commercial banks, 9.10 per cent at the specialised development banks, 7.86 per cent at the foreign commercial banks, and 9.88 per cent at the private commercial banks.
The weighted average rate on deposit in June stood at 4.47 per cent at the state-owned commercial banks, 5.98 per cent at the specialised development banks, 5.15 per cent at the private commercial banks, and 1.66 per cent at the foreign commercial banks.
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