Banks borrow from BB after a four-year gap
After a gap of more than four years, some commercial banks have recently borrowed money from the central bank through repo auction.
Repo auction is an event in which the central bank of a country lends out money to commercial banks.
This borrowing contrasts with the claim that commercial banks are sitting on huge excess funds.
Four banks -- AB, Farmers, IFIC and Meghna -- took part in the repo auction on Tuesday to borrow nearly Tk 172 crore from Bangladesh Bank to meet their fund shortfall.
However, the BB accepted four bids amounting to Tk 152 crore at 7.25 percent interest rate.
AB, Farmers and Meghna also took Tk 35 crore from the BB as liquidity support on Monday.
The last time BB received repo bids from banks and financial institutions was in December 2011.
"We have experienced shortfall of funds in the market last week," said Nurul Amin, managing director of Meghna Bank.
Amin said Meghna had to borrow from the central bank as it could not withdraw investments in bonds overnight.
On Monday, two banks -- AB and Brac -- borrowed Tk 270 crore through special repo, which was last held in July 2014.
Banks have to pay a 10.25 percent interest rate for availing money via special repo.
Shamim A Chaudhury, managing director of AB Bank, said they have investments in bonds and bills as a primary dealer bank. There may also be sudden withdrawal pressure, he said.
"So, cash may not be available sometimes," Chaudhury said.
The banking industry has Tk 5,000 crore to Tk 7,000 crore in excess funds that can be invested anytime, according to a BB official.
Banks, particularly the primary dealer ones, must invest in bonds and bills to a certain limit.
The non-PD banks have also invested in bonds and bills as their scope for commercial investments has squeezed in recent years.
"But banks parked an additional Tk 60,000 crore with the BB to earn some profits. Banks would not invest this amount in the BB if they could lend commercially."