Deposits that flew out of banks' vaults for trust deficit and lower rates of return have now taken a reverse course to enter the banking channel, as banks have lately raised interest rates, sources said.
According to officials and bankers in the know, such reversal comes as a matter of blessing for the banking sector that now passes through a tough time because of looming major liquidity crunch amid central bank's recent belt-tightening steps to squeeze fund supply into the money market to tame inexorable investment.
Hailing the newly introduced reference rate called SMART (Six-Month Moving Average Rate of Treasury Bill), they also view that the qualified freedom to banks under the uncapped-interest regime leads to rise in the deposit rates, which started alluring the potential depositors to come back into the banking channel, specially at a time when the window for investment continues shrinking ahead of the national elections.
According to latest statistics of Bangladesh Bank (BB), the volume of currency outside the banks was recorded at Tk 2.92 trillion in June 2023 that declined to Tk 2.66 trillion in July and Tk 2.58 trillion in August.
Now, in the climb-down, the money tucked under mattress dropped to Tk 2.53 trillion in the month of September, the BB data showed.
Seeking anonymity, a BB official said the central bank governor keeps asking the commercial banks to take measures so that the money that went away from vaults can come back in to the banking system.
"Look at the recent statistics. It is very much encouraging for our banking sector as the volume of currency outside the banks dropped by around Tk 384 billion in the last three months," the central banker said.
Managing director and chief executive officer of Mutual Trust Bank (MTB) Limited Syed Mahbubur Rahman says the banks have raised both deposit and lending rates in line with the SMART rating paradigm and that changes the scenario of mattress money.
The top executive of the bank finds deposit rates continuously increasing in the banking sector. There are few banks which have started offering depositors as high as over 9.0 per cent.
"It is encouraging to see the depositors coming back to the banking system. I hope the volume of the mattress money will be lessening in the coming days as people's confidence in the banks keeps increasing," he adds.
Talking to the FE, managing director and CEO of Dhaka Bank Limited Emranul Huq said currency outside the banks had increased largely because of trust deficit following some reported loan-related irregularities in some Sharia-based banks, and depositors driven by the fear of losing their money withdrawn the funds not only from the unconventional banks but also from the banks having poor ratings.
"This is good news that the depositors started returning to the banking channel as they have started believing that banks are the safest place for investment as no bank fails to return funds on demand till today," the bank's top executive said.
He said the rate of deposit in banks started rising under this SMART regime as liquidity tightness still persists in the banking system. "The banks having liquidity tightness require credits to improve their balance sheet and they have been offering higher rates to allure the depositors."
According to the BB data, the total volume of deposit increased by 9.50 per cent on a year-on-year basis in September 2023.
When contacted, Chairman of Policy Exchange of Bangladesh Dr M. Masrur Reaz said investment instruments for general people on the country's money market are very limited.
Excepting banks, there are areas like savings certificate and capital market where people can make investment. But the share market is unhealthy and putting money in stocks is becoming extremely risky while the rates on savings certificates have gone down logically in recent times, according to him.
"That's why people are now returning back to the banks, which is a good thing," Mr Reaz added.
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