Finance Minister questioned on regulation of interest rates in banks

During the Friday Question-Hour session, Athang Thedtsho MP, Kinley Wangchuk, put up a question on the high interest rates collected by the banks in Bhutan. ‘’Surprisingly, unlike any other businesses, banks in Bhutan endure no risk of failing. The reason is that they are well fortified by high interest rates between 9-12 percent and our banks’ interest rates stand as one of the highest in the world. While we appreciate the stability of our banks, their interest rates have burdened hundreds and thousands of Bhutanese (clients), and as such there is a growing trend of assets being seized from the defaulters,” Athang Thedtsho MP said.

In this regard, he asked whether the government plans to communicate with the Royal Monetary Authority (RMA) to regulate the interest rates among banks in Bhutan. The Finance Minister replied that the Ministry of Finance takes care of systems and policies, whereas RMA looks into monetary policies. According to RMA Act of section 10, Monetary Policies is clear on whether to increase loan, solve recurrent budget problem in banks, whether to give loan, avail loan from outside countries, or plans to make the currency value same like other countries- all such policies are looked upon by RMA, as it is an autonomous agency.

Lyonpo further explained that when it comes to interest, all duties are of banks. When government uses fiscal policies, one freedom that the government has is increasing and decreasing taxes. Secondly, expenditures for the country’s policy are also of the duties of the government. He said, “Using the money on loan from outside countries effectively is our job. Fiscal policy and monetary policy must go together. From RMA’s side, up till now, when it comes to interest, citizens have been given the utmost priority, therefore, in 1999 a policy was made to liberalize banks so as to function comfortably.

By comfortable, it means banks can check the amount they have and how much interest they can give and if the money is lump some, interest can also be given.”

He added that if the money is less and people seeking loans are more than the demand and supply curve will also be affected, and so the rights have been given to the banks.

“Now the problem came when the rights were given to them as it was uneasy because whenever people got loans, interest rates increased, so in 2012, RMA introduced a new interest rate policy called base rate system policy according to which the rate was 10.5 percent reduced interest rates but still people could not benefit much from it. So in 2016, minimum lending rate policy was introduced, under MLR,” said the minister.

The current minimum lending rate of interest for personal loans from banks in Bhutan is 12.9 percent. MLR also aims to develop agriculture and livestock in rural areas due to which the MLR for such initiatives have been given at 7.7 percent.

Thereafter, priority sector lending policy was also introduced.

“What the government can do to serve the citizens is not asking the banks to reduce the interest rates since the government has no rights there, but rather, we can work it out based on policies and system. REDCL is being turned into CSI bank,” Lyonpo said, and further adding, “With many initiatives in the pipeline for our people to avail the loan easily, we hope the banks will also corporate with us.”

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