Rafiqul Islam Azad
The amount of money in people’s hands decreased by about Tk 33,000 crore in the first two months (July-August) of the current fiscal year, while approximately Tk 23,000 crore was deposited in bank accounts during the same period, according to the latest report from the Bangladesh Bank.
Bankers said the money that went into the hands of the people due to high inflation and confidence crisis has started coming back to the banks and the liquidity situation in the banking sector has started to improve somewhat.
Increase in deposit interest rates, slowdown in business and investment ahead of the next general elections, increase in flat and plot registration costs and security risks of keeping money at home encourage the people to deposit money in the bank again, they observed.
According to the central bank data, at the end of last June, about Tk 2.91 lakh crore was in people’s hand or outside the bank. At the end of August, this amount has reduced to 2.58 lakh crores. That is, cash money in the hands of people has decreased by 33 thousand crores in two months.
Informed sources said there was a crisis of people’s confidence in the banking sector at the end of last year following publication of news reports on irregularities in the loans of some banks came to light.
After that, the customers started withdrawing money from their accounts of the respective banks. Besides, the new deposits in banks at that time also decreased. This creates a cash crisis in the banks concerned, said the sources.
Moreover, high inflation has been prevailing in the country for a long time that increased the cost of living. At the same time people’s income has not increased much. Again, the rate of interest on bank deposits did not increase as expected during the period of high inflation. In such a situation, the depositors were not getting actual profit by keeping money in the bank. As a result, the tendency of people to keep cash in the banks was unusual in the previous year from June of 2022, sources added.
The Bangladesh Bank data shows that the increase of cash in people’s hands from July 2022 to June 2023 was about Tk 55,000 or 23.50 percent. Out of this, the flow of money out of the bank increased by about Tk 36,000 crores or 14 percent in the month of June alone. The scenario has however changed in the current financial year of 2022-2023.
A managing director of a private bank said that private sector investment has been declining significantly for the past few months. One of the main reasons for this was the reduction in production costs due to reduced export demand. An increase in production costs increases the amount of money in people’s hands because they have to buy goods and pay employees, he added.
According to Bangladesh Bank statistics, the growth in credit disbursement to the private sector was 9.82 percent in July, which decreased to 9.75 percent in August. This growth in private sector credit is the lowest in the last 22 months. In this case, it is 1 percent less than the target fixed. Earlier in October 2021, private sector credit growth was 9.44 percent. It never fell below 10 percent after that.
At the end of last June, the total amount of deposits in the country’s banks was 1594,590 crores, which increased to Tk 1618,000 crores at the end of last August. That is the total deposits in the bank sector have increased by Tk 23,410 crores in the two months (July-August).
According to the report of the central bank, the growth of deposits in the bank sector in June was 8.40 percent compared to the same period of the previous year, it increased to 9.67 percent in July while 10.18 percent in August.
Bank officials said that the deposits of the banks would increase consistently ahead of the ensuing national elections, investment would decrease, traders’ cash would return to the bank, on the other hand, the deposit rate of the banks will also increase, which will increase the deposit.
A top leader of Bangladesh Garments Manufacturers and Exporters Association (BGMEA) said the reason for the negative growth of private sector credit is the global economic slowdown that increased the inflation both at home and abroad. Due to this, the increase in the interest rates of banks has reduced the borrowing of businessmen, he said.
The election is a big issue as the businessmen are not going for big investments ahead of the polls. Besides, the global demand is still falling and the garment orders are down by about 20 percent and imports have come down. Because of this, private credit flow has not increased. That is why people’s money is returning to the bank, he observed.
Meanwhile, according to website data, some banks were giving fixed deposit rates from Tk 7 to Tk 8.5. This rate was capped at 6 percent before June this year.
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