A much-vaunted regulatory move to mop up high-powered money from the market receives lukewarm response as commercial banks find the Bangladesh Bank bills not lucrative amid liquidity crunch and high tax on yield, sources said.
After the lapse of three years, the regulator restarted operation of BB Bills in a bid to offset cascading effect of high-powered money that it recently injected to salvage some of the liquidity crisis-ridden commercial banks.
Such splurge of printed money fuels inflation, in the first place, creating consumer woes with price spirals, economists say.
In the last five auctions of the credit-mopping tools until December 18, 2024, the central bank could only manage to offset liquidity amounting to over Tk 20 billion.
But the BB went on direct cash feeding amounting to around Tk 250 billion into some of the struggling banks over the last one month, helping the banks meet cash obligations to depositors.
Central bankers, however, think the BB resumed operations of such bills to offset inflation-fuelling high-powered money for almost a month. It will take some time to mop up the fresh money as overall liquidity situation on the money market is under stress.
Seeking anonymity, a BB official mentioned two major factors behind the slow response from the banks regarding participation in the bill auctions. One is tax burden. And the cut-off yields in the auctions of 91-day government treasury and 90-day BB bills remain same at 11.57 per cent.
The BB bill is a central bank instrument where the banks will have to bear 20-percent tax on incomes while a treasury bill is a government instrument where the tax rate is only 5.0 per cent, according to the official.
"The tax differential is probably discouraging the banks from participating in the bills," the central banker said.
On the other hand, the BB official said, the banks need to surrender their funds for 90 days under the BB bills although there is an existing overnight money-depositing option called SDF (standing deposit facility).
"So, instead of BB bills, banks are more interested to deposit their money in SDF. As SDF is an overnight instrument, the banks can easily meet their credit urgency, if arises any," the official said.
BB executive director (monetary policy department) Dr Md. Ezazul Islam says BB bill is a monetary-policy instrument like the REPO. "If Repo facility remains out of the taxation, then why the revenue board imposes tax on the BB bills," he wonders.
The executive director notes that the NBR (national board of revenue) should understand the fact and take immediate step to lift tax on the BB bills.
Managing Director and Chief Executive Officer of Mutual Trust Bank (MTB) Syed Mahbubur Rahman has termed the tax difference a major reason behind the banks' less participation in such auction.
Under the existing liquidity tightness, he says, it will be tough for many banks to keep their surplus funds blocked for as long as 90 days. "Instead of using BB bills, banks feel comfort in choosing other options like SDF and treasury bills. In treasury bills, the commercial lender can avail funds through keeping their treasury-bill receipts as collateral."
Contacted for his view of the quandary, former lead economist of World Bank's Dhaka office Dr Zahid Hussain said the problem of tax difference can easily be overcome if the central bank allows for expanding the cut-off yield on BB bills a little bit.
"I think there is not enough liquidity in the market in the persisting economic slowdown. That could be a major reason," he said.
The noted economist underscores the importance of improving the fundamentals of the struggling banks like bolstering deposit base by intensifying cash recovery.
"Unless we do that, we've to continue operations like patchwork," opines Mr Hussain, a key member of the whitepaper-drafting committee appointed by the post-uprising government.
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