Eminent economists and senior bankers have expressed concern over a decision the government made on Monday to pull out from the banking system Tk2,12,100 crore lying “idle” with autonomous and semi-autonomous bodies.
They fear that the decision if implemented right away will aggravate the existing liquidity crisis in banks, putting extra burden on state-owned and fourth generation private banks.
Before withdrawing the money from banks, they recommend giving the entities six months to one year so that they can absorb the shock.
They, however, think that the decision will create comfortable space for the government in executing fiscal measures, targeting the overall development and improving living standard of people.
Syed Mahbubur Rahman, managing directors & CEO of Dhaka Bank, says withdrawal of such a huge deposit from banks will create discrepancy in ADR (Advance Deposit Ratio) maintenance by the scheduled banks.
He says the fund held by the state-owned organizations are not ‘idle’, rather the resource is in use by banks in various forms.
Mahbubur, also chairman of the Association of Bankers, Bangladesh (ABB), says the deposit withdrawal will lessen the banks’ lending strength seriously.
“State-owned and fourth generation private banks will face trouble in particular once the deposits are gone,” says Mahbubur.
“Once the money is gone out of the system, from banks to government’s exchequer, return of the money again to banks seems uncertain. It is also unclear how the government is going to manage the fund. There is no guideline on how the government would disburse this. So, it is a matter of concern indeed,” he maintains.
He says the money may enter the banking channel later if an individual or an enterprise keeps it with banks after getting them from the government.
“It will not be helpful like the previous deposit,” he observes.
On Monday, a cabinet meeting approved a draft law allowing the government to use ‘excess money’ or ‘idle funds’ of state-owned autonomous and semi-autonomous organizations kept in banks in implementing development projects.
While briefing reporters after the meeting, Cabinet Secretary Mohammad Shafiul Alam said there were 68 state-owned autonomous and semi-autonomous organizations who together had Tk2,12,100 crore deposited with different banks.
The cabinet secretary said that once the law was enacted, 68 organizations would deposit their excess money to the exchequer after keeping respective operational costs.
Currently, autonomous and semi-autonomous agencies can deposit their excess fund with both public and private sector banks with a 50:50 ratio.
Policy Research Institute Executive Director Ahsan H Mansur says the government’s move is not that bad but it will create a liquidity pressure on banks if the money is withdrawn suddenly.
Mansur says he is in favour of enforcement of the new decision with prior counseling to organizations concerned and banks by providing necessary supports, which may be treated as precautionary measures.
“It has not extreme overall macro-economic consequences. But, it has micro-economic impacts, especially for those banks that are highly dependent on government deposits. Those banks may be vulnerable,” he observes.
“It is a huge amount of money. So, the government should keep in mind that the money will not be possible to be withdrawn all on a sudden. It must go case by case, slowly, from there where the exposure is low,” he recommends.
Mansur says the government may allocate time, ranging from six month to one year, for high exposure government deposits.
Mansur says the finance ministry must have a coordination committee to oversee the deposit status and assess the potential amount to be withdrawn.
He recommends that the finance ministry should go for holding separate meetings with banks and autonomous and semi-autonomous bodies for a proper implementation road map.
With regard to withdrawal of excess deposited fund of state-owned organizations, a senior Bangladesh Bank (BB) advisor says that even small or moderate stress may jolt the banking sector following the application of the new move.
The advisor believes that there is no reason to be panicked as the central bank is there to offer liquidity support to banks in various ways.
“A little stress may be generated initially. No reason to be panicked. We (BB) are here to support banks with liquidity supply,” says the advisor, preferring anonymity.
He notes: “One way or the other, the money will be in the hands of banks as all the public transactions will be made through banks. Other benefit of banks out of the decision is the pressure of government’s borrowing on banks will be reduced.”
The central bank senior advisor observes that many of banks often engage themselves in underhand dealings to get the deposits from government’s organizations, which is illicit and unethical.
“Such malpractices will be no more once the organizations will have no excess funds. Banks will return to fair practices,” he says.
Talking to Dhaka tribune, a number of top executives of different banks have said that the latest move of the government to withdraw excess money of the state-owned organizations will endanger some public sector banks and deteriorate overall liquidity status of the already struggling banking sector.
They say many banks widely depend on the low-cost deposits belonging to the state-owned organizations.
Deposits of 68 organizations with different banks are Tk2,12,100 crore, according to the latest data of Bangladesh Bank.
Among them, Bangladesh Petroleum Corporation (BPC) has the highest amount of Tk 21,580 crore in excess deposited with different banks followed by Petrobangla with Tk18,204 crore, Dhaka Power Distribution Authority Tk13,454 crore, Chittagong Port Authority Tk9,913 crore, and the amount of deposited fund belonging to Rajdhani Unnayan Kortipokkho (Rajuk) is Tk4,030 crore.
“This money is not being used for good purposes. So, the government policy is to bring the money to the national exchequer and spend it on public welfare related activities,” said cabinet secretary while briefing reporters at the secretariat last Monday.