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The Bangladesh Bank on Sunday increased the banks’ advance-deposit ratio with a view to enhance their lending capacity and facilitating implementation of the government announced stimulus packages.
In a circular issued on the day, the BB increased the ADR to 87 per cent for conventional banks and the investment to deposit ratio (IDR) to 92 per cent for Shariah-based banks with effect from April 15.
Prior to the revision, the ADR and IDR were 85 per cent and 90 per cent respectively.
The BB said that economic activities had been shrinking in the country like in other countries due to the coronavirus pandemic.
The central bank revised the ADR and IDR to accelerate private sector credit growth, for enhancing liquidity in the banking sector and to support implementation of the stimulus packages declared by the prime minister, the BB circular said.
After the enhancement of the celling, a conventional bank would be able to provide a maximum of Tk 87 as loan against every Tk 100 deposit.
Besides, a Shariah-based bank would be able to provide up to Tk 92 as loan (investment) against every Tk 100 deposit.
An official of the central bank said that the increased ADR and IDR would automatically raise the banks’ lending capacity with the same amount of deposits.
So far, the government has announced stimulus packages worth a total of Tk 77,750 crore, including the latest one declared on Sunday.
On Sunday, the government announced a Tk-5,000 crore low-interest loan facility for farmers to help them recover from the damage suffered due to the coronavirus.
Apart from the increase in the ADR and IDR, the BB has also slashed the cash reserve ratio (CRR) and repurchase agreement rate (known as the repo rate) twice to ensure availability of adequate liquidity on the market to push through the ongoing economic fallout stemming from the pandemic.
Recently, the regulator of the banking sector reduced the banks’ CRR to 4 per cent from 5.5 per cent, a move that would lift the banks’ lending capacity by Tk 18,600 crore.
The cash reserve ratio determines the portion of customer deposits that commercial banks must keep as reserve with the central bank authority.
The Bangladesh Bank has also slashed the repo rate to 5.25 per cent from 6 per cent to make funds cheaper for the banks.
The new CRR would come into effect from April 12 while the lower repo rate would be effective from April 15, according to a central bank instruction sent out to all lenders.
The banks will have to maintain the statutory liquidity ratio (SLR) and CRR against their total depositors’ funds.
Each bank now maintains 13 per cent SLR of their deposits under the Bangladesh Bank guidelines.
(NA)
