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Lenders and clients in Bangladesh are set to get the opportunity to settle transactions instantly as the central bank has moved to expand the facility of real-time gross settlement (RTGS) to non-bank financial institutions and the foreign exchange operations of banks.
The move will also help widen money circulation as funds will move immediately in the financial sector instead of remaining stuck in the banking system for two to three days.
In order to facilitate a safe, secured and efficient interbank payment system, the central bank introduced the RTGS platform in October 2015 as part of its digitalisation drive.
The electronic settlement system allows inter-bank fund transfer on a real-time and on a gross basis. As a result, transactions are settled as soon as they are executed.
The minimum limit of a transaction is Tk 1 lakh and above, whereas there is no ceiling in the case of government payments.
The RTGS replaced a paper-based transaction system and it has gained traction since its inception.
More than 10,000 branches of 60 banks are currently connected to the system.
Clients settled transactions to the tune of Tk 355,183 crore in February through the RTGS system, up 12.4 per cent from a month earlier.
Transactions totalled 543,730 last month, down 6 per cent from the month prior.
Currently, the platform allows settlements in the local currency inside the country. But the latest central bank move would allow banks to settle foreign currency transactions domestically as well.
The central bank is set to roll out the foreign currency transaction from June 1, a BB official said.
The initiative will ease banks’ operation of settling transactions related to export and import.
For instance, employees of banks now have to come to the central bank to place a foreign currency demand draft (FDD) to carry out transactions. Then, the BB forwards it to the related lenders in a bid to complete the process.
Banks have to maintain a foreign currency current account with the central bank. The settlement of FDD is conducted through such accounts.
An FDD is a negotiable instrument used by banks to facilitate inter-bank fund transfers using the route of the central bank.
The settlement is required at least one working day, but the RTGS will help complete such transactions on a real-time basis, the BB official said.
Mirza Elias Uddin Ahmed, managing director of Jamuna Bank, says banks have long been requesting the central bank to introduce the service as this would help them settle foreign exchange-related transactions more efficiently.
“Although the central bank clears the FDD in a day, banks require two to three days to benefit from the transaction.”
“The upcoming process will also help businesses settle import and export-related transactions at a faster pace.”
Allowing NBFIs, alongside banks, to join the RTGS platform will also strengthen their capability, industry people say.
At present, NBFIs have to place manual cheques at the central bank to transfer funds to banks or other non-banks from the former’s current account maintained with the central bank.
It takes at least one day to settle such a transaction, but the RTGS platform will speed up the process since officials will not require to visit the BB.
The BB will introduce the service for NBFIs within two to three months.
“We have already arranged a number of meetings. The NBFIs have begun the process to be connected with the RTGS,” said the central banker.
Initially, 18 NBFIs will be linked to the system.
Mominul Islam, managing director of IPDC Finance, an NBFI, says NBFIs would get more room once the system goes live.
“Clients will be benefited from the new system as well.”
Depositors of NBFIs, for example, usually withdraw funds through a bank. But clients will be able to withdraw the money through cheque from their bank after NBFIs transfer the funds to the account instantly using the RTGS, Islam explained.
(TDS)
