Inter-bank deposit to be part of CDR

FE Report

Inter-bank deposits will be considered part of deposits of the banks for calculating their credit-deposit ratio (CDR) under the latest move of the central bank.

The Bangladesh Bank (BB) announced this on Wednesday.

This arrangement will partly ease the pressure on banks to meet their CDR requirement, in the context of their present liquidity constraints.

Banks under the BB's Asset Management Guidelines of 2003 are not allowed to include inter-bank deposits as their funds on the ground of avoiding the problem of double counting (accounting) of assets.

Under the latest move, the central bank will relax this condition about calculation of CDR

BB deputy governor Murshid Quli Khan told a press briefing at the central bank on Wednesday that the move would be purported to helping augment credit flow.

Under the relaxed condition relating to CDR, the capacity of banks to expand credit might raise by 3.0 to 4.0 per cent, the BB deputy governor said.

He indicated that the new arrangement would be comfortable for the banks and help improve their liquidity management.

The commercial banks, having fixed assets of other commercial banks with them, will have greater opportunity to make investment, he added.

Mr. Khan said the central bank will issue a detailed guideline relating to simplification of CDR and other issues concerned.

He also said the central bank will now be able to keep a better track of the overall situation in the banking sector under the new guidelines.

The circular will help further strengthen the position of banks, he maintained.

"Were expecting to issue a circular within next two or three days," he added.

Under its earlier directive issued on February 20 last, 19 conventional banks are required to bring down their CDR by June 2011 to 85 per cent and five Shairah-based banks, to 90 per cent.

However, the CDR has already been brought down to 81.54 per cent from 85.64 per cent, in case with most conventional banks.

Replying to a volley of questions, Mr Khan said there is no liquidity crisis in the country's money market.

Defending the supply of funds to the commercial banks under repo and reverse repo, he said this is the routine work of the central bank.

SK Shur Chowdhury, executive director of the central bank told the newsmen at the briefing that there was no liquidity crisis in the banking system. "It's only some shortage-type situation".

He said BB is providing funds to 15 primary dealers and two banks.

The supply of money, he added, will not create any inflationary pressures, the rate of which now has surged to over 10 per cent.

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