Hand money returning to bank: BB report

Farhad Chowdhury: The trend of keeping money in people’s hands is decreasing. Deposits are more than withdrawals from the bank. The movement of cash outside the banking system has been decreasing for 3 consecutive months.
At the end of June this year, the amount of cash outside the banks was close to Tk 3 lakh crore. In September, it fell below Tk 2.5 lakh crore. This information has come up in the latest report of Bangladesh Bank.
Bankers say that the amount of cash in the hands of people outside the banks has increased due to the crisis in customer confidence in the banking sector and the rise in inflation. However, after lifting the interest rate cap, banks have increased deposit rates. So now the money is returning to the bank.
Again, due to the slowness of investment ahead of the next national parliament elections, people are returning their money to the bank. Therefore, cash outside the bank is decreasing consistently.
According to the report of Bangladesh Bank, Tk 2 lakh 55 thousand 829 crore cash was outside the bank in May this year. Suddenly, Tk 36 thousand 48 crore increased in 1 month to Tk 2 lakh 91 thousand 913 crore at the end of June. However, it started to decrease again from June onwards.
It decreased to Tk 2 lakh 66 thousand 354 crores in July. It further decreased to Tk 2 lakh 58 thousand 356 crores in August and stood at Tk 2 lakh 53 thousand 505 crores in September. That is, in 3 months, the cash held by people outside the banks has decreased by Tk 38 thousand 408 crores.
It is known that people’s confidence in the banking sector dropped after the news of irregularities in the loans of some banks came to light in November last year. After that, the customers started withdrawing money from the respective banks. At that time, new deposits in the bank also decreased. In this, the banking sector falls into a liquidity crisis. Besides, high inflation has been prevailing in the country for a long time. Cost of living has increased. Again, the rate of interest on bank deposits has not increased as inflation has increased. Due to which the amount of cash in people’s hands increased from November last year.
It is known that before April 2020 interest rates in banks were completely independent. Then the bank loan interest went up to 16-17 percent. In view of the demands of businessmen, the government fixed the interest on loans at 9 and the interest on deposits at 6 percent. After that 9-6 interest rate was fixed for a long time.
From July 1 this year, the interest rate limit was withdrawn, but is not open, but is being extended in a special process. Now the interest rates of bank loans and deposits are slowly increasing. By increasing the interest rate on bank deposits, people have also started keeping money in banks.
According to the report, the average interest rate on bank deposits at the end of June was 4.38 percent. Then slowly increasing every month. It increased by 4.46 percent in July. The average interest rate in August and September was 4.52 percent. At the end of September, deposits in the bank sector increased to Tk 16 lakh 23 thousand 139 crores. Which was Tk 15 lakh 95 thousand 260 crores at the end of June.
The Managing Director (MD) and Chief Executive Officer (CEO) of a private bank told Daily Industry, businessmen are not going for new investments due to ongoing political unrest. Therefore, private sector investment has decreased drastically over the past few months. Again, due to dollar crisis, entrepreneurs are not able to open LC as per demand. It is not producing export goods at the desired rate.
If there is no production, the cost is less. If the cost of production increases, money in the hands of people increases. Because goods have to be purchased and employees have to be paid. Now as these are reduced, people’s money is returning to the bank.
According to the report, private sector credit growth was 9.75 percent at the end of August, which further decreased to 9.69 percent in September. This growth in private sector credit was the lowest in the last 23 months. The current monetary policy targets private sector credit growth at 10.90 percent till December. Meanwhile, Bangladesh Bank is reducing the growth of private sector loans to control inflation.
Finance advisor of the former caretaker government AB Mirza Azizul Islam said that it is not desirable to reduce private debt. A decrease in private sector credit means that investment will decrease in the future. And if investment decreases, employment will also decrease. This will adversely affect poverty alleviation.