Huge amount of cash in hands of people

Banks running with help of BB

Mahfuz Emran: The demand for cash in the country’s banking sector has intensified. Bangladesh Bank continues to print new money to deal with the situation. According to the information of the Central Bank, the number of notes issued in the country on June 20 stood at Tk 3 lakh 27 thousand 563 crores. The country has never seen such number of notes issued before. 95 percent of the notes issued have gone out of the banking sector.
Bangladesh Bank officials said that the situation has worsened in July. Usually, the demand for cash increases around any festival including Eid. But nowadays there is an increased tendency among people to hold cash without any occasion. Especially in the context of last week’s incident, the lack of trust of customers towards the bank has intensified.
Over the last week, there have been incidents like clashes, loss of life, internet shutdown, curfew imposed in the country due to the quota reform movement.
In this context, almost all formal means of money transactions including banks were closed for five consecutive days. Most of the ATM booths were also closed due to lack of money. Despite having money in the bank, people across the country were in a cash crunch. In this situation, there was a long queue of customers in the bank branches to withdraw money on Wednesday. At least 30 commercial banks borrowed Tk25,521 crores from Bangladesh Bank that day to deal with the situation. Banks have maintained cash deposits (CRRs) and statutory deposits (SLRs) with the central bank in addition to meeting customer requirements.
Those concerned say that many banks in the country did not have the ability to meet the cash demands of customers on Wednesday. For this, so much money had to be borrowed from the central bank. On Thursday too, the central bank lent more than Tk 20,000 crore. The daily transactions of more than two dozen banks in the country are now completely dependent on the central bank.
Managing Director (MD) of Social Islami Bank Zafar Alam told, “People could not transact money for five consecutive days. Due to this, the pressure of cash withdrawal was high on Wednesday and Thursday. Some money has been deposited at this time. We have been able to meet the needs of the customers within our capacity. The trend of remittances coming in these two days was a little less.
Mutual Trust Bank MD Syed Mahbubur Rahman gave almost similar information. He said, ‘Due to high inflation and some accidents, the tendency of people to hold cash has increased. Due to this, the number of notes issued by the central bank is increasing. Although there was pressure to withdraw cash in the last two days, our bank deposits were also quite good. If the remittance flow is normal, the liquidity flow in the banks will increase. Hopefully, the situation will be completely normal within two-four days.
For the last two fiscal years, Bangladesh Bank has been announcing the monetary policy with inflation control as the main goal. In announced monetary policy, the policy interest rate (repo rate) is increased to control the flow of money in the market. The repo rate was raised to 8.5 percent by several steps. The limit of maximum interest rate of 9 percent of bank loans was also removed. After that, the interest rate of bank loans in the country has continuously increased to 15-16 percent. On the other hand, the flow of credit to the private sector is also quite stagnant. Imports have been reduced by 15 percent. In addition to the fall in industrial production, the demand for products in the market also fell during this period. Even in this situation, the central bank is continuously increasing the issued notes.
According to Bangladesh Bank’s data review, the balance of notes issued by the central bank at the end of last December was Tk2 lakh 77 thousand 805 crores. In January of this year, the status of cash notes increased to Tk2 lakh 80 thousand 636 crores. Then in February, it increased to more than Tk2 lakh 82 thousand 559 crores. The balance of notes issued in March stood at Tk2 lakh 91 thousand 189 crores. In April, the status of these notes issued increased to Tk3 lakh 5 thousand 198 crores. The balance of notes issued last June 20 exceeded Tk 3 lakh 27 thousand 562 crore.
Economists say that the number of notes issued has to be increased due to people’s lack of confidence in the banking sector. The central bank is issuing notes and those notes are going out of the bank. Inflation control will never be possible by keeping such amount of cash notes out of banks.
According to the former governor of Bangladesh Bank Salehuddin Ahmed, the government is talking about building a smart Bangladesh after digital. However, the internet has been shut down in the country for the past one week. People are still not able to do app-based transactions. In this way, it is not possible to create a ‘cashless’ financial system.
Salehuddin Ahmed told, “Many banks of the country are completing daily transactions by borrowing from the central bank. Some banks have to provide money even if they print new money. Due to these effects, the rate of inflation in the country will increase. People will turn away from banks more and more. Foreign investment will be blocked. Foreigners are watching, the government can shut down the internet here. Bank can stop transactions. Then why foreign investment will come to this country. To improve the situation, the government must first correct itself.
The liquidity crisis in the country’s banking sector has been going on for almost two years. According to Bangladesh Bank sources, at least a dozen banks are in dire straits of cash. Bangladesh Bank has been helping some banks by printing new money. Some of these banks have a loan-to-deposit ratio (ADR) of more than 100 percent. Before the last Eid-ul-Azha, the daily borrowing amount from the central bank was Tk 15-20 thousand crores. However, after Eid, the loan amount was gradually decreasing. Last July 11, some banks borrowed only Tk 6 thousand 877 crores from the central bank. On July 16, the loan amount increased to Tk 9,998 crores. On July 18, there were clashes across the country centered around the quota reform movement. In this context, the loan amount of the banks increased to Tk 16,768 crores. Then the bank was closed for five consecutive days from Friday to Tuesday. At this time, almost all official means of money transactions including the Internet were closed. Limited banking is going on during curfew relaxation from Wednesday. In this case, the bank is open from 11 am to 3 pm. Banks of the country kept half of their branches open and offered banking services on Wednesday and Thursday. Out of this, at least 30 banks borrowed Tk 25,521 crore from the central bank on Wednesday, 24 July. More than Tk 20 thousand crore had to be borrowed on Thursday as well.
These funds are lent through Repo, Assured Repo, Assured Liquidity Support (ALS) and Islamic Banks Liquidity Facility (IBLF) for Shariah-based banks.