Shadows of intensified liquidity pressure hover over banks as the banking regulator decides to phase out from April 10 the prime borrowing instrument used for feeding funds to the commercial lenders.
Bangladesh Bank, the country's central bank, made the decision to wrap up the 28-day repo window not only to force commercial banks to seriously focus on efficient fund management but also help in making transactions on the call-money market vibrant.
But bankers balk at the latest regulatory move on the monetary front that falls in a string of policy measures of recent times meant for streamlining the banking system left unkempt by the past regime, sources say.
They presage such initiative will put more liquidity pressure on the commercial banks at a time when the banks are intensifying their focus on growth in private-sector credits.
Issuing a circular Monday, debt management department of the banking regulator said the commercial banks are now allowed to borrow from the central bank against repo window in three segments of 7-day, 14-day and 28-day tenures.
"From April 10 next, the repo auctions for 7-day and 14-day tenures will only be held," the circular says.
To meet one of IMF conditions binding its $4.70-billion lending package taken for stabilising Bangladesh's macroeconomic situation, the BB has cut down the daily liquidity support against the repo facility to twice a week (Monday and Wednesday) since last July. Later, it was reduced to once a week (Tuesday) with effect since November last.
Seeking anonymity, a central banker said they would implement the decision on the discarding of the 28-day liquidity window, which banks used largely in meeting their exigent liquidity obligations.
After the Eid-ul-fitr festival, the BB official said, the liquidity pressure on the banks would probably be not too heavy. "I think, the banks will have some breathing space to plan properly."
Another central banker says the commercial banks are observed largely using the long-term repo instrument and investing in short-term government securities to gain handsome returns.
"I think short-term borrowing instrument is enough for banks to address their short-term liquidity obligation. 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."
According to BB data, the commercial banks all together borrowed a total of Tk 645 billion on the first three repo window-opening dates (March 5, March 12 and March 18) of this month. Of the total, some 75 per cent of the funds were borrowed using the 28-day-tenure-repo facility.
But bankers think different on this policy shift. It would create more burdens on banks through disrupting their fund-settlement commitments in the current context of liquidity tightness on the money market, they say.
Preferring not to be quoted by name, the treasury head of a private commercial bank talked this issue. He said the central bank should make decision considering convenience of the market players, not bowing to any agency like the IMF.
He suggests that the repo-operational process ought to be effective as the central bank automatically deducts borrowed repo credits on the morning of the maturity date from the banks' CRR account but the banks get repo funds again in the evening.
"So, the banks would face fund settlement-related problems further in the coming days with the phasing out of the instrument. The repo-driven fund injection and deduction on maturity should go simultaneously," the treasury official says.
According to the treasury head of another bank, lenders normally take money from the BB under the repo facility at a policy rate (now 10 per cent) and use the funds in high-yield government securities or other sectors.
"By doing so, banks get a handsome spread," he told the FE about the tricks of the trade on the money market.
The experienced banker says the banks normally keep more funds in CRR accounts than the requirements so that the regulator can deduct borrowed repo funds on maturity.
"Despite keeping additional funds in the accounts, the banks are not getting any cost," he adds.
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