Commercial banks having surplus funds still feel comfortable with depositing their uninvested credits in the central bank’s standing deposit facility (SDF) despite its lower gains while high-yielding Bangladesh Bank (BB) bills continue to meet with a lukewarm response.
According to officials and bankers, key factors such as tax implications and maturity periods are driving banks to prefer the lower-yielding SDF instrument over the 90-day BB bills.
According to the BB data, affluent lenders deposited Tk 176.92 billion worth of funds in the SDF until December 23 this month, meaning they deposited over Tk 11 billion every day on an average.
In contrast, the banking regulator managed to mop up just Tk 27 billion in the first six auctions of the BB bills, with an average of Tk 4.5 billion per auction.
The cut-off yield in Thursday’s auction of the BB bills was 11.49 per cent while the rate of SDF, which is the floor rate of the interest rate corridor (IRC), is 8.50 per cent.
Requesting anonymity, a BB official said the SDF is an overnight instrument while BB bill is a 90-day money-sterilising instrument.
If a bank chooses BB bills, their money will be blocked for three months, but it will not face such experience if it uses SDF as it is an overnight deposit tool, he said, adding that this could be a reason behind the bank’s higher dependence on low-yielding SDF.
Managing Director and Chief Executive Officer of Mutual Trust Bank (MTB) Syed Mahbubur Rahman said the BB bill is a central bank instrument where banks will have to bear a 20 per cent tax on income while there is no such obligation for the SDF.
Amid persisting liquidity crunch, he said, there are many banks which will possibly face difficulties in keeping their money blocked for 90 days.
“But in case of the SDF, banks can use the credits if emergencies arise. These factors might be the reasons behind the growing dependency on the SDF,” said the seasoned banker.