NBFIs must give one month's notice to borrowers for hiking interest rate

The central bank has directed the country's non-bank financial institutions (NBFIs) to issue a compulsory notice to the customers at least one month prior to increasing the interest rate on their outstanding loans.

The NBFIs also have to give a logical reason for the hike and ensure that the concerned borrowers received the notice through registered postal services, according to a circular issued by the Department of Financial Institutions and Markets of Bangladesh Bank on Sunday.

Customers have to pay a 1% Early Settlement Fee for repaying the loans before the due date. However, if a customer wants to make an early settlement within one month after the increase in interest rate, then no fee can be charged, the circular stated.

Moreover, such fees cannot be collected in case of an early settlement of loans given to the Cottage, Micro and Small (CMS) enterprise sector.

According to the new instructions, in the case of decreasing and increasing the interest rate under a loan agreement, the reduced or additional payable amount should be adjusted equally with the subsequent installments and customers should be given a new payment schedule. 

The central bank has recently observed that some financial institutions have not been ensuring the receipts of customer notices regarding the re-adjustment of interest rates as per rules, the circular mentioned. 

Moreover, there have been instances of customers learning that their loans are not fully paid or adjusted after paying the last installment as per the loan agreement terms, the central bank said.

As a result, borrowers are facing additional loan liability due to changes in interest rates made by the institutions. The central bank also observed the need for rationalisation of the existing rate of the Early Settlement Fee, the circular added.