Banks get more time to lower advance-deposit ratio

The banking regulator yesterday extended the deadline for banks to lower their advance-deposit ratio (ADR) by three months to March 31 next year amid pressure from the directors of commercial banks.

 The central bank issued a circular to this effect yesterday.

On January 30, the central bank ordered conventional banks to lower their ADR to below 83.50 percent by June from the existing ceiling of 85 percent and Shariah-based banks to 89 percent from 90 percent to control aggressive lending practices.

But the BB was later forced to extend the deadline to December as some banks have plunged into an acute liquidity crisis after the emergence of Farmers Bank debacle. A number of state-owned enterprises and general depositors shifted their funds to state-run banks due to a lack of confidence in private banks. The Bangladesh Association of Banks, a forum of private banks' directors, has recently demanded the central bank revise the deadline further.

The central bank has also slashed the cash reserve requirement by one percentage point to 5.5 percent to inject additional fund of Tk 10,000 crore into the market, fulfilling another BAB's demand. The central bank made funds cheaper last week for banks by cutting its repo rate -- the rate at which the central bank lends money to commercial banks -- by 75 basis points to 6 percent. In a separate move, the government has taken a decision to allow state agencies to deposit 50 percent of their funds with private banks from the previous ceiling of 25 percent.