The country's non-performing loan (NPL) crisis is assuming alarming proportions, with nearly 33 out of every 100 taka disbursed by banks now classified as defaulted.

Bangladesh Bank has issued a stern warning to all commercial banks across the country, instructing them to strictly deduct Tax Deducted at Source (TDS) at prescribed rates from the interest or profit paid to depositors, and to deposit the collected revenue into the government treasury within stipulated deadlines. The central bank’s Banking Regulation and Policy Department issued a circular regarding this directive on Monday, August 10. Key Reasons Behind the WarningAccording to the central bank circular, recent inspections revealed irregularities and errors by several banks in deducting the correct rates of source tax on deposit interest or profits and failing to deposit them into the government treasury on time. Revenue Loss: The central bank noted that failing to deduct the mandated tax rates leads to significant government revenue shortfalls. Audit Complications: These discrepancies create severe complexities during subsequent tax adjustments and financial audits. Core Directives Issued by Bangladesh BankMandatory Deductions: In accordance with Section 102 of the Income Tax Act, 2023, banks must deduct source tax at applicable rates based on customer categories from interest or profits paid on savings, fixed, term, or any other type of deposits. Higher Penalties for Non-Compliance: Under Section 142 of the Income Tax Act, 2023, if a customer fails to submit proof of return submission (PSR), banks are legally bound to deduct source tax at a rate 50 percent higher than the standard rate. Prohibition on Fund Retention: The circular explicitly states that deducted source taxes must not, under any circumstances, be held back in General Ledger (GL) accounts or any other internal accounts past the designated deadlines. Funds must reach the state treasury on time. Record Keeping and Compliance: Banks must properly maintain all records of tax deductions, prepare necessary statements, and ensure submission of challan copies to relevant authorities while fully complying with the Income Tax Act, 2023, and Income Tax Rules, 2023. Stricter Deadlines for Depositing Tax to the State TreasuryUnder the Source Tax Rules, 2023, Bangladesh Bank has outlined precise timelines for transferring collected revenue: July to May: For taxes deducted during any month from July through May, the funds must be deposited into the government treasury within two weeks following the end of that respective month. June 1 to June 20: Taxes deducted between the 1st and 20th of June must be deposited within the next seven days. June 21 to June 30: For taxes deducted from the 21st until the final day of June, funds must be deposited into the government treasury on the very next day. The directive was issued by the Banking Regulation and Policy Department under the powers conferred by Section 45 of the Bank Company Act, 1991.

In consideration of depositors' interests, banking stability, and public interest, Bangladesh Bank has dissolved the board of directors of Islami Bank. The appointments of all directors, including the recently appointed Chairman Khurshid Alam, have been canceled. All powers and responsibilities of the board have been vested in Mohammad Zaher Hossain, an Executive Director of the central bank. The information was disclosed in a notification issued by Bangladesh Bank on Sunday (June 14). The notice stated that by virtue of the powers vested in Bangladesh Bank under Sections 45 and 47(3) of the Bank Company Act, 1991, and in the interest of the banking company, its depositors, and the general public, the central bank has canceled the appointments of all directors, including the chairman of the board of Islami Bank Bangladesh PLC. The notification further noted that under Section 47(3) of the Bank Company Act, 1991, Bangladesh Bank Executive Director Mohammad Zaher Hossain will exercise all powers and perform all duties of the board. Earlier in the day at 4:00 PM, the central bank held a meeting with the Managing Director (MD) and other top executives of Islami Bank at the Bangladesh Bank headquarters. Central Bank Governor Mostakur Rahman was present at the meeting. Islami Bank's Managing Director (Current Charge) Altaf Hossain, two Additional Managing Directors (AMDs), and six Deputy Managing Directors (DMDs) participated in the discussion. The Islami Bank delegation briefed the Governor on the bank's current situation, liquidity pressures, and recent developments. Meanwhile, due to widespread unrest and a lack of confidence stemming from the appointment of the chairman, the country's largest private commercial bank has plunged into a severe crisis following massive cash withdrawals by clients. To mitigate the situation, Bangladesh Bank has already announced an assistance package of Taka 2,500 crore for Islami Bank. On May 24, Islami Bank Chairman Professor M. Zubaydur Rahman resigned abruptly. On the same day, former Bangladesh Bank Deputy Governor Md. Khurshid Alam was appointed as the new chairman. Following this appointment, resentment and backlash grew among a section of the bank’s officers, employees, shareholders, and clients. Under the banner of the "Islami Bank Conscious Depositors Forum," continuous demonstrations have been ongoing in front of the bank's head office in Motijheel for over a week. Protesters allege that placing a controversial individual in the top position could disrupt the bank's ongoing reform efforts. They have announced a program to besiege Bangladesh Bank this coming Tuesday if their demands are not met.

The Bangladesh Bank has announced the monetary policy for the final six months (January–June) of the 2025-26 fiscal year. In this latest policy statement, the primary policy interest rate has been kept unchanged. On Monday (February 9), Central Bank Governor Dr. Ahsan H. Mansur unveiled the policy during a press conference held at the bank’s headquarters. Key Economic ObservationsDuring the announcement, the Governor highlighted several critical trends in the financial sector: Private Sector Credit: Credit growth in the private sector has fallen below expectations, which the Governor attributed to political instability and a lack of confidence. Government Borrowing: Despite budget cuts, government borrowing from the banking sector has increased. IMF Compliance: The Governor confirmed that Bangladesh Bank has met all conditions set by the International Monetary Fund (IMF). Reserves and Dollar Management: Approximately $4 billion has been purchased from the market over the past year. Notably, the Governor stated that no dollars were sold from the national reserves during this period. Remittance Growth: Remittance inflows have grown by over 18%, with projections suggesting total remittances could reach $35 billion this fiscal year. Adjustments to the Interest Rate CorridorWhile the main policy rate remains steady, the central bank has adjusted the Interest Rate Corridor (IRC) to encourage banks to lend to the private sector rather than "parking" excess cash at the central bank. Rate Type Status New Rate Policy Rate (Overnight Repo) Unchanged 10.00% Standing Lending Facility (Upper Ceiling) Unchanged 11.50% Standing Deposit Facility (Lower Floor) Reduced 7.50% (previously 8.00%) Rationale: Bangladesh Bank noted that some banks were preferring to deposit surplus liquidity with the central bank instead of engaging in the interbank market or lending to the private sector. To discourage this and boost market dynamism, the floor rate (SDF) was slashed by 50 basis points. These changes are set to take effect from February 15.

Taking a firm stance against long-standing irregularities, poor management, and staggering default loans, Bangladesh Bank has decided to move forward with the liquidation of six non-bank financial institutions (NBFIs). Out of nine struggling firms initially under review, three have been granted a final grace period to stabilize their operations. According to the decision made by the central bank, GSP Finance, Prime Finance, and Bangladesh Industrial Finance Company (BIFC) have been given three to six months to improve their financial indicators. Failure to show significant progress within this timeframe will result in these institutions also facing liquidation. Read More US May Announce Tariff Reductions on Bangladeshi Goods Next Week The decision was finalized during a Board of Directors meeting on Tuesday (January 27), chaired by Governor Ahsan H. Mansur. Executive Director and Spokesperson of the central bank, Arif Hossain Khan, confirmed the development following the meeting. A History of Default and DecayThe move comes after 20 NBFIs were served show-cause notices in May last year for failing to return depositors' money and maintaining high levels of non-performing loans (NPLs). After reviewing the recovery plans of nine specific firms, the central bank found them unsatisfactory, leading to the liquidation list. The institutions currently facing the liquidation process or strict observation include: FAS Finance Bangladesh Industrial Finance Company (BIFC) Premier Leasing Fareast Finance GSP Finance Prime Finance Aviva Finance Peoples Leasing International Leasing Data from Bangladesh Bank reveals that due to years of mismanagement and weak oversight, default loan rates at these institutions have skyrocketed to between 75% and 98%. The Shadow of Financial ScandalsIndustry experts point to large-scale scams during the previous administration as the primary cause of this collapse. Notably, the infamous P.K. Halder is accused of embezzling at least 3,500 crore BDT from Peoples Leasing, International Leasing, FAS Finance, and BIFC, which effectively shattered their financial foundations. Relief for DepositorsIn a move to protect public interest, Governor Ahsan H. Mansur assured depositors that their funds would be returned. Speaking at a press conference, he announced that individual depositors will receive their principal amounts by February, ahead of the month of Ramadan. Central bank officials noted that the government has verbally approved approximately 5,000 crore BDT to facilitate these repayments. However, it was clarified that depositors will only receive their original principal amount; no interest or profits will be paid.