The demand for liquid money in the banking sector is on the rise as lending to the government continues. Besides, the interest rate ceiling has also been lifted. In such a situation, the interest rate for deposits is also increasing.
Banks that are in a liquidity crisis are taking relatively high-interest deposits. Some banks are providing up to 13.40% interest on deposits. As a result, people have started returning to banks with their cash.
Padma Bank Ltd is now accepting term deposits at up to 10% rate. National Bank is offering interest up to 13.40%, which will make the principal amount double in five and a half years in the Special Savings Scheme. The shariah-based Social Islami Bank offers 9.5% profit on deposits for three years. Some banks in crisis are paying higher interest than declared.
According to data from Bangladesh Bank, the total deposits of the banking sector at the end of last October was Tk16,36,000 crore which is 9.80% higher than last year.
According to the central bank's report, deposits in banks amounted to Tk15,64,079 crore last May, which increased to Tk15,95,254 crore in June. In the month of July, bank deposits increased to Tk16,07,895 crore, which increased to Tk16,18,50,816 crore in August. Deposits increased to Tk16,23,74,016 crore in September and Tk16,36,000 crore in October.
Bankers said that conscious people consider the assurance of getting deposits back on time rather than the interest rate. That is why banks in crisis often do not get the desired deposits even though they offer high-interest rates.
In this context, the former chairman of the Association of Bankers Bangladesh (ABB), an association of private bank executives, Mohammad Nurul Amin said many people are depositing new money in the bank now that the interest rate on deposits has increased. Distressed banks often take deposits with interest rates that exceed the ceiling. However, despite the high interest rate, many people do not want to keep deposits in these banks owing to the fear that banks in crisis may face more risks.
According to Bangladesh Bank data, as a result of the increased interest rate, the amount of cash outside the bank decreased to Tk2,66,354 crore last July. In August, it further decreased to Tk2,58,356 crore. In September, the amount of money outside the banks fell to Tk2,53,505 crore which further decreased to Tk2,45,943 crore in October. However, in May this year, cash outside the bank was Tk2,55,829 crore. In the following month, it increased to Tk2,91,913 crore. In other words, Tk36,084 crore went out of the banks in just one month.
However, deposits in Pubali Bank PLC increased by 16% in the last four months. In this context, the Managing Director of the bank, Mohammad Ali, said that deposits are increasing after the removal of the interest rate limit. People are now getting good interest by keeping money in the bank. As a result, the money kept outside the bank is returning to the bank. Banks are also increasing liquidity for lending.
Meanwhile, along with the increase in the deposit interest rate, the call money rate for loans has also increased. On Thursday, the average interest rate for borrowing or lending money overnight on call money rose to 9.14%, and on Sunday it was 9.16%. This is the highest interest rate on call money rate since 2012—when it rose to 12.82%.
Bankers say that as several banks are currently suffering from a liquidity crisis, there is a sudden rise in call money interest rates. Banks in crisis have to borrow money from other banks to meet their daily needs. As demand for cash increases, interest rates rise. Besides, it is the end of the year. Therefore, banks have to finalize their balance sheets.