The Investment Corporation of Bangladesh, or ICB, has requested the government to cut interest rate on term deposits it took from banks to support the stock market.
Presently, the corporation has some Tk 106.71 billion in costlier deposits it took on various occasions, bearing interest rate ranging from 8.0 per cent to 11 per cent.
Under the present interest rate, the ICB needs to pay Tk 11.53 billion annually to the depositors. It has already paid Tk 5.767 billion half-yearly interest.
In a recent letter to the finance ministry, the ICB asked for slashing the interest rate to 5.5 per cent in line with the government's effort to cut the interest rate of deposits and loans.
In the letter, ICB managing director Abul Hossain said the corporation needs to take term deposits only to support the stock market, especially when the bourses are in dire strait.
He also said that in 1996 and 2010, the bourses witnessed big debacle, which forced the ICB to take term deposits at higher rate of interest.
After the 2010 market crash, the ICB had to support the bourses by taking high-cost term deposits.
But the corporation could not sell the shares, leaving the volume of term deposits accumulate significantly.
During fiscal year 2001-02, the term deposit of the ICB was Tk 4.24 billion, which rose to Tk 106.71 billion in fiscal year 2019-20, Mr Hossain said.
In November 2017, the central bank exposed the ICB to the single borrower's limit, making it almost impossible for it to secure new term deposits from the banks.
As a result, the corporation had to pay back excess amount of term deposits, which has weakened its market support capacity.
When contacted on Sunday, Mr Hossain told the FE the government has already decided to bring both the deposit and lending rates to a single digit to support industrialisation in the country.
The new rates will come into force from April this year.
"If the new rates are implemented, the interest rate of ICB's term deposits also need to be revised," he said.
Mr Hossain said the total annual interest of ICB's term deposit is almost double the corporation racks up profit.
"For the sake of stock market, our deposit rate needs to be trimmed," he added.
Acknowledging receiving such a letter from the ICB, a senior official at financial institution division told the FE the issue is being scrutinised.
"We will discuss the issue with the ICB and the depositors on how the rate can be lowered," he said.