Commercial banks have been empowered to lend more as the central bank has relaxed cash reserve requirement (CRR) and statutory liquidity ratio (SLR) rules.
Officials said the banks are allowed to maintain both CRR and SLR with the Bangladesh Bank (BB) only for net investment in subordinate bonds instead of the previous gross investment amount.
The central bank issued a circular with two reporting formats on Monday, saying it will come into force with immediate effect.
Currently, the banks have issued subordinate bonds worth around Tk 150 billion to consolidate their capital base in line with the Basel-III framework.
"We've revised CRR and SLR rules to help the banks improve loanable funds that may also be lent to their prospective clients," explained a senior BB official.
About the revisions, he told the FE that the revised policies will help the banks bring down interest rates on lending through reducing the cost of funds.
The banks have been allowed to comply with the CRR and SLR rules separately since 2014 for implementing monetary policy effectively.
Under the existing rules, they will have to maintain 5.50 per cent CRR with the central bank from their total demand and time liabilities on a biweekly basis.
Besides, the banks are now allowed to maintain the reserve at 5.00 per cent on a daily basis, but the biweekly average has to be 5.50 per cent in the end.
The CRR will have to be maintained with local currency (Bangladesh taka) only.
The day-end balances of the current accounts maintained with different offices of the BB will be aggregated to compute the maintained cash reserve of the day.
On the other hand, the SLR requirement is now 13 per cent daily for conventional banks and 5.5 per cent for Islamic Shari'ah-based banks and Shari'ah-based banking of conventional banks of their average total demand and time liabilities.
The eligible components for maintaining liquidity reserve are cash in tills (both local and foreign currency), gold, daily excess reserve (excess of cash reserve) maintained with the BB, balance maintained with the agent bank of BB and un-encumbered approved securities as defined in the Banking Companies Act.
The BB will issue a separate directive allowing the banks to add net investment to such bonds as their total time and demand liabilities to meet the advance-deposit ratio (ADR), according to another official.
"We'll issue another circular for [banks'] compliance with the ADR rules shortly," the central banker added.
Such revised calculation formula for the ADR will help banks improve their lending capacity without receiving fresh funds from different sources, he explained.
Under the revision, the banks' net investment in the subordinate bonds will be considered as deposit in calculation of their ADRs.
Talking to the FE, Syed Mahbubur Rahman, chairman of the Association of Bankers, Bangladesh (ABB), said such revisions will help increase the banks' lending capacity.
Ali Hossain Prodhania, managing director of Bangladesh Krishi Bank, said it will help improve the flow of liquidity in the banking sector to some extent.
The BB had extended the deadline by three more months to implement the revised limit of ADRs by the banks.
Under the extended timeframe, the banks having ADRs above re-fixed limit are allowed to implement the revised limit of ADRs by March 31, 2019, instead of December 31, 2018.
The ADR is re-fixed at 83.50 per cent for conventional banks and 89 per cent for Shariah-based Islami banks.
The existing ratios are 85 per cent and 90 per cent respectively.
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