The central bank is likely to squeeze existing repo facility with allowing cash support against repo once a week from next month in a move to prompt banks manage funds more efficiently.
According to officials concerned, the move will not only force commercial lenders to seriously focus on efficient fund management, but also help make transactions in the call-money market vibrant.
To meet an IMF condition on its $4.70-billion lending package for stabilising the country's macroeconomic situation, the Bangladesh Bank (BB) cut down the liquidity support against the repo facility to twice a week (Monday and Wednesday) since last July.
Seeking anonymity, a central banker said they decided to limit the repo-based cash support to banks once a week from the coming month instead of the current two days.
"We'll issue a circular regarding the matter very soon. It's one of the conditions raised by the International Monetary Fund (IMF) as part of its lending package," he continued.
"I think banks might face some stress temporarily, but it will be a good move for them in the long run to manage their stock of credits more efficiently."
But bankers opined differently, saying that it would create more burden on banks through disrupting their future fund commitments in the current context of liquidity tightness on the money market.
Preferring not to be quoted by name, the treasury head of a private commercial bank talked about this issue.
He said many banks were not getting funds from interbank sources even after offering rates as high as 10 per cent but affluent banks felt comfort in keeping their uninvested credit in SDF where the rate was 8.0 per cent.
Fund crunch starts prompting liquidity-tightened commercial lenders to go for costly borrowing from the banking regulator through the SLF instrument where the rate is 11 per cent.
In such a challenging period, the banker says, if the BB further limits the repo facility, which will be the last nail in the coffin of cash-hungry banks, they will have the only option to go for costly borrowing through SLF instrument.
According to the treasury head of another bank, lenders normally take money from the BB under the repo facility at a policy rate (now 9.50 per cent) and invest the funds in high-yielding government securities or other sectors.
"By doing so, banks get a handsome spread. Now, opportunities will be squeezed," he told the FE.
[email protected]
