Finance Minister AMA Muhith said the interest rates of banks will be reduced to single digits within a month.
He also announced that the government will keep 50% of pubic deposits at private banks in an effort to tackle the liquidity crisis."The process will be initiated immediately," he said.
The minister said the Cash Reserve Requirement (CRR) for banks will be 5.5% from the existing 6.5% to mitigate the ongoing liquidity crisis in the banking sector.
"After holding discussions and taking opinions from various parties, we have taken a decision to slash the CRR by one percentage point to 5.5 percent," he told journalists after a meeting with Bangladesh Association of Banks (BAB) at Sonargaon Hotel in the city.
Muhith was speaking at Janata Bank’s annual program. The finance minister said he is unsure as to why interest rates increased so much. “There is a liquidity crisis in banks right now because of the upcoming election. Perhaps that is why the interest rates have risen. Nevertheless, we have to remember to keep inflation in check,” he said.
Muhith said the move would help banks to mitigate their liquidity crisis immediately and the decision will not create any inflationary pressure.
The finance minister said the owners of the banks demanded a reduction of the CRR to 3%.
Nazrul Islam Mazumder said they demanded 3 percent CRR to solve the existing liquidity crisis in the banking sector.
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"If the government reduces the CRR rate, banks will get some money to smooth their operations by overcoming the existing crisis," he added.
He said the decision of reducing CRR by one percent will play a vital role in tackling the liquidity crisis and develop the banking sector.
Mazumder said private banks are playing a vital role in increasing investment as about 70 percent of investments come from the private banks.
CRR is a cash reserve ratio, which a bank has to keep in its current account with the Bangladesh Bank against deposits.
The minister also said: “I have decided that half of the deposits of government organizations will be kept in government banks while the other half is kept in private ones.
“Every government official should be inclined to serve. Government jobs are not to boss people around, but to serve them,” he continued.
He further added: “It is possible to dispose of some of the cases filed by banks using the ABR method. This way, banks will be able to get back more of their defaulted loans and loan defaulters will be able to rid themselves of the burden of a bad reputation.”
According to the current rules, 75% of government assets are currently kept at state-run banks. Managing directors and chairmen from various private banks have long urged the government to make larger deposits at their institutions, reports BSS.
Muhith also said bankers have now agreed to bring down interest rates on banks' deposits. "Given the banking rules, the conditions of the country's banks are not healthy," he said.
"This situation has long been prevailing in the banking sector because we couldn't create capital market for banks," the minister said, adding: "For long-term financing, we've permitted banks as well as established Investment Corporation of Bangladesh, but failed to make any remarkable progress in the market.
"We've tried to create a bond market for long-term investment but entrepreneurs did not have enough strength there and so the changes were never made.”
Janata Bank Chairman Luna Shamsuddoha presided over the event, with Bangladesh Bank Governor Fazle Kabir and Financial Division Secretary in Charge attending as special guests. Janata Bank Director General Abdus Salam Azad also spoke at the event.