DFIM Circular No. 07: Interest/Profit Rate of Deposit and Loan/Lease/Investment

Financial Institutions and Market Department Bangladesh Bank Head Office Dhaka. Ref No.: DFM-14(1)-19 DFIM Circular No.-07 Managing Directors / Chief Executive Officers All Financial Institutions operating in Bangladesh.

Dear Sir,

Regarding the Interest/Profit Rate of Deposit and Loan/Lease/Investment.

To introduce a market-based interest rate system for deposits collection and loan distribution by financial institutions, the following guidelines shall be followed:

(a) A reference rate will be determined by Bangladesh Bank based on the market interest of 182-day Treasury Bills issued by Bangladesh Bank, which will be referred to as the Benchmark Reference Rate (BRR). This BRR will be published on the website of Bangladesh Bank on the first working day of each month as determined by the Debt Management Department;

(b) Financial institutions will determine the interest/profit rate of deposits and loans/investments under the policies approved by their respective Boards of Directors; however,

(1) The interest/profit rate of deposits shall not exceed BRR + 2%; (2) The interest/profit rate of loans/leases/investments shall not exceed BRR + 5%;

(c) In addition to the aforementioned interest/profit rates, a maximum supervisory charge of 1% may be collected for SME loans and consumer loans (including personal loans and car purchase loans) falling under the category of 'Consumer Loans'. Such supervisory charge may be collected/imposed once a year. No compound interest or charge shall be levied on this annual supervisory charge. However, in case of adjustment of any loan account during the middle of the year, the supervisory charge at the rate of 1% may be collected proportionally for the time period;

(d) The interest/profit rate shall be determined based on the BRR declared in the immediately preceding month of the month in which the interest rate is to be determined. For example, while determining the interest rate for March, the BRR published in February shall be considered;

(e) In determining the interest/profit rate for loans provided under incentive packages/special funds formed by Bangladesh Bank or the Government, the policy formulated for the relevant fund shall apply.

Date: 06 Asharh 1430 20 June 2023 Continued page/02

2. If there is a need to adjust the customer's loan installment due to a change in the interest/profit rate through the distribution method, the customer must be informed beforehand before the re-determination of the installment.

3. Financial institutions operating on the basis of Islamic Shariah will determine the profit rate against deposits/investments by adding the maximum margin specified in paragraph 1(b) to the BRR declared by the Debt Management Department. In addition, they may collect the supervisory charge specified in paragraph 1(c).

4. As per the instructions of DFIM Circular No.-09 dated: 29 November 2012, the matter of uploading the details of the declared interest rate of the relevant month using the DFIM Portal within the 7th date of that month will continue.

5. The prescribed interest rate for the relevant month shall be applicable for any new loan disbursement. Whether the interest rate is fixed or variable, it must be determined with the consent of the borrower before the disbursement of the loan. However, in the case of applying a variable interest rate, the change shall be effective every 06 months. For example, if a new loan is disbursed on 01 January 2024, the variable interest rate will be adjustable on 01 July 2024.

6. In light of the issuance of these instructions, the instructions of DFIM Circular No.-06, dated: 18 April 2022 are hereby repealed.

7. These instructions shall come into effect from 01 July 2023.

These instructions are issued under the powers conferred by Section 18(c), (d), and (f) of the Financial Institutions Act, 1993.

Yours faithfully,

(Mohammad Amir Uddin) Director (DFIM) Phone: 9530178. -02-