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Getting formal finance could be much tougher for smaller firms in the coming days because of the lending rate capped at 9.0 per cent, bankers and economists said on Thursday.
They feared the significant cut in the deposit rates might lure the potential depositors into risky ventures like multi-level marketing companies and cooperatives to get more returns.
To ensure single-digit interest rate for lending, they suggested the policy makers address fundamental problems like growing bad loans, which raises costs of borrowing.
The fears and suggestions came at a discussion on "Financial Sector; Economy of Lending and Interest."
The City Bank and Bangla daily Bonik Barta jointly organised the discussion at a city hotel.
Executive director of the Policy Research Institute of Bangladesh or PRI, Dr Ahsan H. Mansur was critical of the recent BB circular capping the lending rate at 9.0 per cent from April 01.
He said the volume of loan-able fund available for the private sector has not increased in recent years rather declined.
"So, the question is who will get the loans after fixing the lending rate? The answer is simple, a vested group will benefit, not the SMEs (small and medium enterprises)," he said.
"We're developing such a system where access to finance is largely denied in an inclusive policy regime. Where are we pushing them?" he said.
"We're pushing them to the costly shadow banking and MLM companies are still running in the country," he added.
Instead of touching the periphery areas, he said, the government should address the fundamental problem of growing non-performing loans, which have gone up by around 24 per cent.
"If we can reduce it to 2.0 per cent, the lending rate will automatically go down. We need to touch the core issue. Nothing can be solved through dictatorship in the open market economy," he added.
Managing partner of PricewaterhouseCoopers, or PwC, Mamun Rashid said the slashing of deposit rates worried savers and depositors, especially senior citizens.
"Now, what will happen to them? There is an apprehension that the investment might go towards risky ventures like cooperatives and MLM operators," he added.
Managing director and chief executive officer of Mutual Trust Bank Limited Syed Mahbubur Rahman said the issue of governance needs to be ensured in the sector to control soured loans.
"The lending cap will badly hurt the profitability of many banks and financial institutions. I think, we need to reassess whether the banks can absorb the upcoming shock," he added.
Executive director of the Centre for Policy Dialogue, CPD, Dr Fahmida Khatun was also critical of the BB circular, saying that the country is adopting policies, which are beneficial to a certain group.
"It seems to us that the BB is getting weaker. It needs to be strengthened enough as a regulatory body of the financial sector," she added.
Former BB governor Dr. Mohammed Farashuddin said the problem arose from the early 90s when the banks were forced to make long-term investments with the short term deposits.
"I have doubts enough over the level of success of the initiative in the open market economy," he added.
Speaking as the chief guest, BB governor Fazle Kabir said private sector credit was 16.60 per cent in FY'18 and declines to over 13 per cent in FY'19.
"Now it is around 10 per cent. That's why, we've fixed the rate," he added.