73% NBFI deposits exceed Tk50 lakh ceiling. What happens once new law takes effect?

Nearly three-fourths of the deposits held by non-bank financial institutions (NBFIs) will be affected once a new law, which sets a deposit ceiling of Tk50 lakh per person, takes effect.

According to the Bangladesh Bank, the outstanding deposits of NBFIs amounted to Tk44,683 crore at the end of June this year. Among them, Tk12,026 crore was deposited in accounts with balances less than Tk50 lakh, while the remaining Tk32,656 crore was deposited in accounts with balances exceeding Tk50 lakh.

Industry insiders have suggested that the deposit amounts may decrease once the Finance Companies Act 2023, which was passed by parliament last week, is implemented.

The law states that an NBFI cannot accept deposits of more than Tk50 lakh from an individual, and this limit may reach as high as Tk1 crore in total if the individual also deposits in a joint account.

However, the new law gives the Bangladesh Bank the power to set the deposit ceiling at its discretion, which is what the NBFI sector is hoping for.

"We have many depositors who have deposited more than Tk50 lakh in NBFIs. Sometimes the amount even exceeds Tk2-3 crore. The new law could lead to a decrease in deposits," said Md Golam Sarwar Bhuiyan, chairman of the Bangladesh Leasing and Finance Companies Association (BLFCA).

"However, the central bank has the authority to increase the limit. I believe that the Bangladesh Bank will consider our concerns."

According to central bank data, the NBFI sector has 15,709 accounts with more than Tk50 lakh, including a few accounts with more than Tk150 crore. The new law prohibits these accounts from holding such large amounts.

"Our sector is already facing a liquidity crisis. We have to borrow from different banks to manage our liquidity. On top of that, the central bank has capped our deposit interest rate at 9.93%," said the chief executive officer of a top-tier NBFI. "Many banks are now offering 12-13% interest on deposits. Since we have an interest rate limit but banks don't, we can't compete with them in deposit collection."

Commenting on the possibility of further deposit decreases due to the new law, the CEO of another top-tier NBFI told TBS, "According to our business model, we depend on large deposits. If we now have to collect smaller deposits, we will need to open many new branches and hire more staff, which will significantly increase our operating costs.

"Additionally, deposits above Tk50 lakh cannot be renewed after maturity, meaning that deposits of Tk8-10 crore will need to be reduced to Tk50 lakh."

The CEO commented that the new decision will exacerbate the deposit crisis in the NBFI sector.