The banks have already instructed their branches not to open any new deposit scheme accounts. Such schemes, numbering about 40 lakh, account for 20 percent of total deposits.

They now offer the highest of 12 percent interest rate on various schemes. However, if the depositor re-deposits the interest in fresh schemes, the weighted interest rate would go up to 16 percent.

Currently, two types of schemes are in place -- the monthly income and monthly savings schemes. A person depositing Tk 100,000 in the income scheme will get Tk 1,000 a month. This Tk 1,000 can again be deposited in the monthly savings scheme to get Tk 80,000 after five years. This virtually puts the return at 16 percent.

Premier Bank has decided to cut its deposit rate to 9.5 percent from 12 percent, Shahjalal Bank to 10 percent from 12.5 percent and NCCBL to 9 percent from 12 percent. Some banks may abandon the schemes altogether.

These banks had offered these high interest bearing deposit schemes in the face of stiff competition. But this pushed up their cost of funds of which deposit rates alone accounted for up to 10 percent.

"We had been waiting to see how far the government reduces interest rate on savings instruments," Managing Director of NCCBL M Aminuzzaman said . "Last year, the private banks reduced lending rates, but they did not touch deposit rates. We are under pressure to further cut lending rates, which now compels us to reduce deposit rates."

Aminuzzaman, who also heads the Bankers' Association -- an organisation of chief executives, said the banks are in talks to take a concerted step on interest rates.

Adviser to Premier Bank Kazi Abdul Majid said deposit rate cuts will help them reduce lending rates.

Bangladesh Bank will meet the top bankers on January 7 to discuss lending rate reduction.