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Internet banking transactions reached a record high amount of nearly Tk 50,000 crore in May, signifying the enhanced cost and time savings and convenience enabled over visits to brick-and-mortar branches for a growing number of bank account holders.

The transactions soared 142 per cent year-on-year to Tk 49,930 crore, showed the latest Bangladesh Bank (BB) data.

On a month-on-month basis, it was a growth of 12 per cent.

This is also threefold the amount recorded in the whole of fiscal year 2014-15.

The all-time high also reflects customers increasingly switching to electronic fund transfers and banks focusing investments on developing technology to provide faster and hassle-free services.

“We see a spectacular increase in internet banking because it helps people do banking staying at home,” said Md Mezbaul Haque, executive director of the BB.

“We are promoting digital transactions and banks are also showing interest as going electronic is cheaper than conducting transactions through ATMs,” he said.

“Many banks did not have any mobile app. Now more than 40 banks have apps to facilitate customers in carrying out banking digitally,” he added.

Now customer literacy and awareness are needed as people are showing interest and banks are promoting electronic banking, said Haque.

To encourage digital banking, the central bank has extended regulatory support from time to time by increasing transaction limits for clients.

The rollout of Bangladesh Real Time Gross Settlement (BD-RTGS) and Bangladesh Electronic Funds Transfer Network (BEFTN) by the BB and increased use of smartphones also helped popularise digital banking, said bankers earlier.

There has been a massive growth in utility bill payments and mobile top-ups through digital banking, said Mohammad Ali, managing director and CEO of Pubali Bank Ltd.

“Paying utility bills was a hassle. Now many people pay bills through mobile financial services by transferring money from their bank accounts,” he said.

“People are switching to online transactions at lightning speed…People are paying electronically for their purchases too,” he said.

Pubali Bank Ltd, one of the oldest and largest banks, recorded an average growth of 63 per cent year-on-year in digital transactions over the last five years, he said.

Ali, however, said customers do still need to come to banks to process their cheques.

They will not need to come to banks if the central bank develops a unified system or app so that account holders can upload photos of their cheques for settlement electronically, he said.

Banks are introducing new products as digital banking is growing, said Emranul Huq, managing director and CEO of Dhaka Bank Ltd.

“The growth of digital banking has sped up as banks are becoming connected with mobile financial service (MFS) providers,” he said.

“Once customers used to transfer funds to MFS. Now deposits are also coming from MFS. This has become a big area,” he said.

Dhaka Bank Ltd has introduced nano deposits and registered an increase in the opening of accounts, he added.

On the risks of cyberattacks and fraud, Huq said banks were investing to build firewalls to ensure digital security and protect their systems.

The BB issued an ICT risk management guideline for banks, abiding by which will require banks to make a lot of investment, he said.

Customers’ literacy and awareness is also needed, he said.

Bangladesh and India began settling cross-border trades in the Indian rupee (INR) last week, a development that has been hailed as a landmark for the growing bilateral commerce in general and for Bangladesh in particular.

Initially, the scope of making import payments would be limited to the equivalent of Bangladesh’s export earnings of around $2 billion from India.

This means it might not immediately give a boost to Bangladesh’s foreign currency reserve, whose level fell by about 30 per cent in the past one year owing to higher import bills against lower-than-expected export and remittance earnings.

As per new arrangements, Bangladeshi exporters will receive their proceeds in the rupee in the nostro accounts opened with ICICI Bank and State Bank of India (SBI). The proceeds will be used to facilitate Bangladesh’s import transactions with India.

Trade analysts describe the move as a welcome step, saying it would deepen trade ties between the two neighbours, reduce dependency on the US dollar, and cut the cost of business.

“Bangladesh has found a new currency to settle international trades and this will bring benefit in the future,” said Ahsan H Mansur, a noted economist.

Before the addition of the rupee to the list of currencies used to carry out cross-border trades, Bangladesh settled trades in the US dollar, the pound sterling, and the euro, with the American greenback dominating.

Mansur said the addition of the rupee will bring no major benefits immediately, especially when it comes to alleviating the pressure on the reserve.

“This is because Bangladesh will receive rupees instead of US dollars against export proceeds since India will make payments in their currency to settle imports as well.”

The trading arrangement will be beneficial for the businesses that import from India and export to the country. Besides, trade costs will be lower for them, said Mansur.

Mansur, also the executive director of the Policy Research Institute of Bangladesh, a private think-tank, however, says local businesses may attract more customers which will raise Bangladesh’s exports to India.

Bangladesh’s scope to open letters of credit has been squeezed to some extent owing to the fall in the forex reserve.

The settlement of LCs in the rupee may solve the problem to some extent, Mansur said.

The growing trade in the rupee will help India make its currency a reserve currency, he added.

The US dollar, the euro, the Chinese renminbi, the Japanese yen, and the British pound sterling are the reserve currencies.

Prof Mustafizur Rahman, a trade analyst, also said that trading in the INR would not bring much impact on the reserve level as a certain volume of US dollars will neither be added to the reserve nor leave it.

He said some global brands that have a presence in India may continue to purchase goods from Bangladesh in the USD.

Rahman, also a distinguished fellow at the Centre for Policy Dialogue, said the risk facing the taka will still be there since the INR may fluctuate.

He suggested attracting more lines of credit and more foreign direct investments in the rupee from the neighbouring country.

“Then it will benefit our economy.”

Atiur Rahman, a former governor of the Bangladesh Bank, said the beginning of trade in the rupee is a very first but very important step for bilateral trade.

“If Bangladesh can increase its exports to India, the benefits of the mechanism will expand. So, Bangladesh needs to find out new avenues to export more to the neighbouring country.”

If India offers a new line of credit in the rupee and the loan is used in settling LCs regarding fuels, it can lessen the pressure on the forex reserves to some extent, he said.

The former governor suggested using UPAS (Usance Payable at Sight) LC to import products from India. “This will reduce costs and popularise the system.”

The BB rolled out UPAS LC, an import system carried out on the basis of buyers’ credit, in 2012.

“We are not going to replace the US dollar. Instead, we are supplementing it,” said Amit Kumar, country head of SBI.

He said the benefits of trade in the INR are the reduction of net demand for the US dollar, the lowering of costs stemming from currency conversions, and cutting the processing time needed to carry out trades.

Kumar said a market-based exchange rate is beneficial for Bangladesh.

“The taka has depreciated steeply against the US dollar in the last one year. The rupee has not witnessed such a fall. So, settling of trades is good for Bangladesh.”

The taka has depreciated by around 10 per cent against the INR in the past one year while it weakened by around 25 per cent against the USD.

According to the SBI official, trading in the INR would be cost-efficient since hedging will not be involved. On the other hand, trades in the US dollar involve costs related to currency hedging, he said.

The move comes as India pushes to make the rupee a global currency. The Reserve Bank of India (RBI) has already put in place a mechanism to settle international trade in the currency.

The central bank of India has allowed banks from 18 countries to make payments in the rupee. The countries include Sri Lanka, Israel, Russia, Germany, Singapore and the UK. Now, Bangladesh has been included in the list.

“India wants to make the rupee a tradable currency. So, the launch of trade settlements with Bangladesh in the rupee is a good initiative from their perspective,” said Mamun Rashid, a trade analyst.

He said the initiative is good but its effectiveness will depend on the private sector since exporters will decide whether they will accept their earnings in the rupee instead of the US dollar.

“In our previous experience with China, we saw the Chinese private sector prefer the US dollar instead of the renminbi. So, it is important to see how the private sector in India reacts.”

He said the rupee and the taka have not fluctuated against the US dollar at the same pace, so a higher depreciation of the Bangladeshi currency may work in its favour.

However, the rupee can also fluctuate, he said.

The losses stemming from the currency conversion for Bangladeshi traders might still be there despite using the rupee.

This is because if an Indian buyer enters into a deal with a seller from Bangladesh, the former will have to convert the rupees into the USD first. The Bangladeshi seller will get payments in the American currency and will convert them into the taka to use them.

Now, Indian importers will not face such a conversion since the rupee will be used during the transaction, while it remains the same for Bangladeshi companies. For them, only the currency changes.

Bangladesh’s annual imports from India stand at around $20 billion. So, the demand for the US dollar will be there among importers.

Md Fazlul Hoque, a former president of the Bangladesh Knitwear Manufacturers & Exporters Association, says he is not sure how the mechanism will reduce the pressure on the forex reserve.

He said most of the exporters except those in the agro-based sector are dependent on global markets for raw materials. And they will continue to need US dollars to purchase raw materials from other countries.

The central bank will have to be careful so that this group of exporters can’t receive payments in the INR against their shipments to India since the reserve will fall if such happens, he said.

The central bank yesterday unveiled a long-term financing facility for private sector firms, mainly export-oriented manufacturers, to help them borrow in US dollars to purchase equipment and services needed to run sustainable operations.

Under the Bangladesh Bank-Long Term Financing Facility, the loan, which could be as high as $10 million, will be offered in the US currency, according to a guideline.

Widespread opportunity for medium-and-longer term financing was inadequate in the country a decade ago and the constraint still persists.

And the financing of businesses for shorter-than-required tenure is creating a funding mismatch. As a result, the banking sector is finding it difficult to mitigate the long-term funding gap in both local and foreign currencies.

Recently, the BB completed the long-term financing facility (LTFF) programme, which gave access to long-term funds in foreign currencies to capital-intensive manufacturing firms.

The success and popularity of the LTFF prove that there exists a huge demand in the market for a sustainable longer-term credit facility, the guideline said.

So, the central bank has decided to continue providing long-term financing to private sector firms, mainly export-oriented manufacturing enterprises, so that they can adopt sustainable means of production and augment competitive advantage in the global value chains.

The financing will be given through banks, known as participating financial institutions, authorised to deal with foreign exchange.

Among other qualifications, PFIs must have a minimum rating of three or better CAMELS ratings determined by the BB, must have less than 8 per cent non-performing loan, and meet the minimum regulatory capital adequacy requirement to be eligible to participate in the fund.

Problem banks or banks with large financial scams or those with an observer or coordinator placed by the central bank are ineligible, according to the guideline.

Refinancing from the fund against the loans that had been disbursed before January 1, 2021 will not be permissible.

A borrower can apply for BB-LTFF for any amount not exceeding a maximum threshold limit of $5 million through a single PFI and for any amount not exceeding a maximum threshold limit of $10 million under syndicated financing through two or more PFIs.

The fund can be used to procure capital machinery, meet expenses related to their installation, and expand or set up new manufacturing industries.

The purchase of ocean-going vessels and specialised transport vehicles supporting the transportation of goods manufactured in the country and establishing businesses that comply with environmental and social standards will be facilitated.

Financing will not be provided to any loans that result in direct economic, social or environmental impacts through land acquisition, involuntary resettlement, impact on indigenous people, and loss of income sources or means of livelihood.

The maturity of the loans will be three to 10 years, including the grace period. The grace period will be determined by PFIs based on the projected timing of the cash inflows of individual projects.

The grace period will not be more than one year.

An indicative pricing range of 180-day average SOFR plus 0.25 to 1.25 per cent would be applicable to the PFIs.

The Secured Overnight Financing Rate (SOFR) is a benchmark interest rate for dollar-denominated derivatives and loans that replaced the London Interbank Offered Rate.

PFIs will determine their own loan interest rates to borrowers considering their cost of borrowing and operational expenses, plus a reasonable risk-adjusted spread and profit margin to be in the range of 1 per cent to 2 per cent above the cost of funds.

The government’s borrowing from domestic banks and non-banking sources was 16 per cent higher in the just-concluded fiscal year as it had to rely on debts to finance public expenditures amid lower revenue collections.

The government took Tk 133,800 crore in loans from domestic sources in 2022-23, excluding the net sales of national savings certificates, according to data from the Bangladesh Bank. It was Tk 115,216 crore in 2021-22.

Of the sum, 73 per cent, or Tk 97,684 crore, came from the central bank in FY23, which may contribute to stoking inflationary pressures.

“This will create demand as the central bank is printing money to lend to the government. This fresh money is coming to the market. This will stoke inflation,” said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh.

If the government borrowed from banks, there would not have much effect on inflation, he said.

According to the economist, there is concern about the composition of debts.

“And the concern remains the same for the new fiscal year as the government keeps borrowing. The main reason is the failure to collect required amount of revenue. We are already seeing the consequence of that.”

For the 11th consecutive year, the National Board of Revenue missed its tax target in FY23 in the face of slowing growth of collections amidst economic slowdowns and ambitious goals set by the government. The collection grew only 8 per cent in the year.

The government planned to borrow Tk 140,425 crore from domestic sources in FY23. And it managed to could keep debts within the plan although borrowing from the banking system exceeded its projection by 7 per cent year-on-year, BB data showed.

The government’s debt from banks stood at around Tk 123,000 crore, up from Tk 115,425 crore. And in the first four days of the new fiscal year, it took Tk 3,538 crore as loans from banks.

Fahmida Khatun, executive director of the Centre for Policy Dialogue, said the continued borrowing shows that the government’s fiscal space is shrinking.

Fiscal space refers to the financial resources available to a government for policy initiatives through the budget and related decisions.

“The government’s fiscal position is strained and it appears that it has no alternative but to borrow,” she said, adding that the government would require an increased amount of fund in 2023-24 since the size of the national budget has increased.

The government plans to borrow about Tk 258,000 crore from local and foreign sources in FY24 to implement the Tk 761,785 crore national budget.

Of the amount, it wants to secure 60 per cent from domestic sources, mainly banks.

Fahmida said banks are already in liquidity stress and high borrowing from the sector might affect the credit flow to the private sector and investments.

Mansur, also a former economist at the International Monetary Fund, said the government might borrow a higher amount from the central bank to finance the budget in order to avoid increased debt servicing.

“By borrowing from the central bank, it will pay a low interest rate. And ultimately, the cost of loan will be zero as the earnings of the central bank will go to the state coffer.”

On the other hand, if the government borrows from banks, it would require to pay a higher interest rate and the overall interest rate in the market would go up that would affect businesses.

“It appears that the government is not willing to dishearten businesses. But the irony is that it is the common people who will pay for higher inflation.”

Firoza Begum, a resident of Shalmara village in Bhelabari union under Aditmari upazila of Lalmonirhat, opened a 12-year term policy with Fareast Islami Life Insurance Company some 15 years ago.

With the policy having matured about three years back, Firoza has regularly visited the company’s local office since then in a bid to get back her Tk 80,000 deposit.

“But I am not getting my money,” said the 52-year-old housekeeper.

Like Firoza, around 3,000 policyholders of Fareast Islami have been struggling to get claims amounting to around Tk 19.58 crore due to a liquidity crunch in the company, according to an official of the insurer.

“I am tired of going to the insurance company,” she added.

Rafiqul Islam, who works as a day labourer in Uttar Saptana village under Lalmonirhat sadar upazila, said his life insurance policy also matured three years ago but he is yet to get his funds back.

“I often visit the company’s office to get my Tk 40,000. I need the money as my wife is sick but I cannot afford the treatment,” he added.

On condition of anonymity, an official of Fareast Islami’s Lalmonirhat branch, said they have 21,000 policyholders in the district.

With about 3,000 of these clients’ policies having matured, many of them flock to the company’s local office every day in a bid to get back their deposit.

“However, the head office is not providing refunds,” the official added.

Abdul Hai, head of Fareast Islami’s Lalmonirhat branch, said policyholders are not getting their money back due to the company’s lack of liquidity.

“It is not possible to say when the claims will be settled,” Hai said, adding that he even stopped coming to office on a regular basis to avoid the mounting pressure from claimants.

Sheikh Kabir Hossain, chairman of Fareast Islami, said the company is “sick” as it owes a lot of money while its owners are in jail.

The government had set up a new board of directors to restore Fareast Islami to its previous position, but they have not made much progress so far.

“Due to this sickness, it is not possible to pay back debts at the required rate,” said Hossain, who is also president of the Bangladesh Insurance Association.

Another reason is that new clients are not coming to open policies anymore as the company has gotten a bad reputation, meaning that there is a lack of incoming funds to clear the debt, he added.

Jahangir Alam, spokesperson of the Insurance Development and Regulatory Authority (Idra), said Fareast Islami was issued several directives to pay outstanding claims.

In addition, their activities are being monitored, he added.

As per unaudited data of the Idra for 2022, Fareast Islami currently owes Tk 4,559 crore in claims.

Of this amount, the company has settled just Tk 970 crore, or 21.29 per cent, of the total claims.

In April 2021, the Idra appointed Shiraz Khan Basak and Company, a chartered accountant firm in Bangladesh, to conduct a special audit on Fareast Islami.

The auditor then submitted a report to the Idra in May 2022.

As per the report, Tk 2,367 crore has been embezzled from the company. Apart from this, accounting irregularities amounting to Tk 432 crore were detected.

Nazrul Islam and MA Khaleque, former chairmen of Fareast Islami, Hemayet Ullah, former chief executive officer, and former directors and senior officials were found involved in the embezzlement.

The money was embezzled in mainly two ways: purchase of land at prices higher than the market value and bank loans availed mortgaging the company’s Mudaraba Term Deposit Receipt (MTDR).

The MTDR is a profit bearing account based on the Mudaraba concept that offers returns on money deposited for a fixed period of time.

In September 2021, the Bangladesh Securities and Exchange Commission dissolved the company’s board of directors. That same month, the then chief executive officer, Hemayet Ullah, was sacked by the Idra.

At present, Fareast Islami operates through independent directors.