No love for NBFIs from BB yet | The Daily Star
12:00 AM, May 31, 2020 / LAST MODIFIED: 09:26 AM, May 31, 2020

Taming coronavirus rampage

No love for NBFIs from BB yet

Five years ago, Siddiqur Rahman, an employee of a private organisation, took a loan worth Tk 50 lakh from a non-bank financial institution to build his dream home.

Rahman has always been regular with his loan instalments.

But his pristine record looks set to be tarnished as his employer has slashed his salary to cope with the cash flow crisis brought on by the pandemic-induced shutdown.

So a facility that the central bank has extended to bank borrowers would come in handy for Rahman and his fellow NBFI borrowers.

The Bangladesh Bank has asked all banks to transfer all interest accrued or to be accrued between April 1 and May 31 this year from all of their loans to an interest-free blocked account.

Both the BB and the government are now mulling over rebating a portion of the interest from the borrowers' account.

No such move is in the works for NBFIs' borrowers, which is a discrimination of sorts.

As of now, there has been no package for the sector, although the financial health of the majority of the NBFIs is precarious and could do with the propping up against the pandemic-induced onslaught on their businesses.

For instance, the BB on May 11 has instructed banks not to give any cash dividend to both sponsors and investors of banks until September to boost their capacity to absorb the strain on their capital base from the ongoing economic fallout.

A similar move for the country's 34 NBFIs would be a good bulwark for them.

"We have already completed our annual general meeting. And the dividend will be distributed within the next few days," said Momin U Islam, managing director of IPDC Finance, an NBFI.

So the central bank should give clear instruction to the NFBIs to this end in the quickest possible time, he said.

The BB has already cut the banks' cash reserve ratio (CRR) in two phases by a total of 150 basis points to 4 per cent, a move that has helped banks ease up on their liquidity crunch.

But the NBFIs have yet to get such a facility, said Islam, also the chairman of the Bangladesh Leasing and Finance Companies Association (BLFCA).

Against the backdrop, the BLFCA has requested the central bank to cut both statutory liquidity ratio (SLR) and CRR by 100 basis points each.

At present, the NBFIs have to maintain 2.50 per cent as both SLR and CRR.

The central bank has recently rolled out two separate stimulus funds worth Tk 50,000 crore for the large, small and medium enterprises and the service sector, which are being hit hard by the pandemic.

Of the total fund, the central bank will provide Tk 25,000 crore from its own sources by creating two separate refinance schemes.

But NBFIs will not get their desired support from the packages as the fund will be distributed in proportion to their outstanding working capital.

So, the BLFCA has requested the central bank to form a dedicated refinance scheme worth Tk 10,000 crore for the NBFI sector, Islam said.

"The ongoing liquidity crunch in the NBFI sector will ease if the fund is constituted."

The NBFIs usually mobilise a good portion of their funds from banks, but they are now in a liquidity crunch if their own.

"So, the banks could withdraw their funds from NBFIs, which will exacerbate the crisis. We requested the central bank to ask banks not to do it," he added.

Contacted, a high BB official said the financial sector regulator is now thinking of slashing the CRR for NBFIs and creating a fresh refinancing scheme shortly.

The central bank has yet to fix its stance on suspending dividends and transferring interest from loans to an interest-free blocked account for NBFIs, he added.

But NBFI borrowers like Rahman is praying the BB takes a positive decision soon.

"I will get a great respite from the ongoing dire straits if a portion of the interest is reduced from my loan account," said an anxious Rahman.

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