BB cuts cash reserve ratio for non-banks

The central bank yesterday cut the cash reserve ratio (CRR) for non-bank financial institutions (NBFIs) in order to help the cash-strapped entities tackle the ongoing economic fallout brought on by the coronavirus pandemic.

The regulator of the banking sector reduced NBFIs' CRR by 100 basis points to 1.50 per cent, a move that would free up Tk 305 crore for them, said a central bank official.

The CRR determines the portion of customer deposits that commercial banks must keep as a reserve with Bangladesh Bank.

NBFIs will have to maintain at least 1.5 per cent as CRR on a weekly basis and the ratio will not decline below 1 per cent under any circumstances.

But the banking watchdog has not revised a 5 per cent statutory liquidity ratio (SLR) that NBFIs had earlier maintained. CRR is a part of SLR.

Banks and NBFIs have to invest a portion of their depositors' fund in the treasury-bills and bonds to maintain SLR. This means NBFIs will have to invest 3.50 per cent of their depositors' fund in the government securities against the previous ceiling of 2.50 per cent.

But, the NBFIs, which do not take any term deposit, will be allowed to maintain the portion of SLR. They will have to keep 2.50 per cent as SLR in the central bank.

There are 35 NBFIs in the country of which 5 do not mobilise term deposit.

The unrevised SLR will not put any adverse impact on NBFIs as majority of them have invested their fund in the government securities surpassing the mandatory limit.

The central bank has already reduced banks' CRR by 150 basis points to 4 per cent, a move that has injected more than Tk 19,000 crore into the economy.

This is a welcome move as it will help NBFIs address the ongoing financial meltdown, said Mominul Islam, chairman of the Bangladesh Leasing and Finance Companies Association (BLFCA), an organisation of managing directors of NBFIs.

"We have frequently requested the central bank to do so," he said, adding that the BLFCA had called for reducing the whole SLR.

The organisation will meet with the central bank officials within this week where it will raise more other issues to tackle the meltdown, said Islam, also managing director of IPDC Finance.

The central bank is working on forming a refinance scheme of Tk 10,000 crore for NBFIs.

"We will also discuss the issue with the governor," Islam said.