BB clarifies rules for credit-deposit ratio

The Bangladesh Bank said it relaxed the rules of the credit-deposit ratio (CDR) of banks so that their loanable fund rises.
In a letter yesterday, the central bank said the banks will be able to include inter-bank deposits in their total deposit while calculating their CDR.
The BB issued the letter to clear confusion about the CDR and loanable fund.
As a result of the central bank move, the banks' loanable fund could increase by Tk 5,000 crore, said a BB official.
The change will now allow commercial banks to calculate their CDR including their deposits in other banks as a source of fund. Earlier the BB excluded those deposits from the denominator.
The change to CDR rules came after the banks and bankers' associations met the prime minister and the central bank governor, urging them to relax the CDR rules as the money market now faces a liquidity crisis.
In the letter, the central bank also urged the commercial banks to assess their total fund situation on a weekly basis following its guideline, which has already been prepared to clear various confusions in calculating the loanable fund of a bank.
The central bank also advised all banks to follow the framework to ensure appropriate use of credit as has been stated and that credit growth does not outrun deposits.
In February, the BB set June 30 as deadline for bringing down the CDR of commercial banks to an authorised level. According to a central bank directive, the general banks must maintain a CDR of 85 percent, while it is 90 percent Islamic banks, capping their investment limit.
The directive came after it was found that many banks were involved in risky banking by investing more than 100 percent of their deposits.