A file photo shows officials of a private bank working at their workstation in Dhaka. Bangladesh Bank is going to introduce a base rate system for scheduled banks to ensure transparency in setting rates of interest on different credit products by banks.
Bangladesh Bank is going to introduce a base rate system for scheduled banks to ensure transparency in setting rates of interest on different credit products by banks.
A BB official told New Age on Monday that the central bank had already taken an initiative to prepare a system how the base rate would be calculated by the banks.
The banks will compute their base rates considering a number of variables which are cost of funds, cost of CRR and SLR, cost of administration and cost of equity capital.
The BB official said that base rate was the minimum rate below which it was not viable for a bank to lend at the market. The base rate system will promote transparency in product pricing and encourage healthy competition in the economy, he said.
The majority of the banks are now charging their clients illogical interest rates, but they will not be allowed to charge such type of rates when the base rate will come into effect, he said.
Banks will have to show their respective base rates on their web sites so that clients remain informed about the matter, he said.
Clients will be able to bargain with the banks if they (banks) charge them excess rate of interest.
The base rate system will prevent undercutting in interest rates driven by competition, increase credit flow to small borrowers at a reasonable rate of interest and also prevent banks from overcharging any customer at the cost of another, and safeguard the interest of low-income people.
Besides meeting the primary objective of bringing about required transparency in the pricing of the lending products, the base rate will also facilitate the transmission of monetary policy that translates through the policy rate and other policy instruments.
The banks will be able offer interest rate differential treatment for different borrowers for the same product when they will calculate the base rate.
They will be able to provide better interest rate for good borrowers on the same product.
The BB official said a number of countries including India, Nepal and Bhutan had already introduced the base rate system to calculate the interest rates for credit products.
Source: New Age
