Economy, Business And Markets

Banks Ignore CBI Directive on Interest Rates

Banks Ignore CBI Directive on Interest RatesBanks Ignore CBI Directive on Interest Rates

Although nearly 10 months have passed since the Central Bank of Iran (CBI) issued a directive to lower deposit rates, some banks and credit institutions continue to ignore the directive and are offering deposit rates as high as 32 percent, ISNA reported.

Under CBI regulations, commercial banks and credit institutions are allowed to offer a maximum deposit rate of 22 percent on annual deposits. Interest offered on sight deposits was set at 10 percent by the central bank.

All banks and credit institutions are legally obliged to offer the newly set deposits rates and many have done so. This had led to relative order in the money market during the past few months.

Despite all the efforts the CBI has made to monitor the implementation of the new regulations and the serious penalties applied in infringement cases, some banks are circumventing regulations via different methods.

They present their customers with deposit plans with effective interest rates exceeding 10 percent for sight deposits and over 22 percent for one-year deposits.

Credit institutions hold the record for most infringement cases, specifically those considered unauthorized by the central bank, some of which are trying to obtain permits.

In one case, a credit institution had offered rates 25 percent interests on sight deposits and 32 percent for one-year deposits.

Banks do not have a clean record either. One commercial lender, not identified by ISNA, is reportedly offering 22 percent interest on sight deposits.

Even authorized banks resort to illegal methods to attract customers. For example, they do not penalize depositors for early withdrawal of their funds.

In line with decreasing inflation, deposit interest rates are set to decrease even further in the coming year (starting March 21). However, breaches of regulations still prevail.

Both, Economy Minister Ali Tayyebnia and CBI Governor Valiollah Seif have said that the actions of unauthorised credit institutions have seriously impeded the government’s move to lower interest rates.

Violations of the credit institutions are hindering monetary policy. The main problem is that the CBI has not been able to regulate or effectively monitor the activities of credit institutions.

Seif, however, has stated that although the regulations on deposit rates have not yet been followed by all banks and credit institutions, the CBI continues to closely monitor the activities lenders.

Nonetheless, in light of credit institutions’ past actions, the idea of lower deposit rates in the coming year seems impractical.