Excess bank liquidity

The central bank is going to relax the rules about consumer credit in an apparent move to boost bank loan remaining stagnant in the last two years amid sluggish investment climate resulted from political unrest and energy crisis, sources said on Thursday.
The prevailing sluggish trend of investment has led to the piling up of an excess liquidity of about Tk 100,000 crore in the banking system. Of the amount, Tk 24,700 crore remained almost idle causing concern to the authorities of the commercial banks.Admitting the matter, a senior Bangladesh Bank (BB) official told The New Nation yesterday that the central bank was going to take the initiative considering the ongoing gloom in bank lending.
 “As part of the move, the authorities of central bank would relax the rules for buying homes and flats under the scheme of consumer credit. The policy initiative would create inspiration among the buyers of flats and homes and it would later boost lending business of the banks,” he added.
Justifying the move, he said, “Commercial banks are now beset with the crisis,” and being the banking sector regulator, BB has to apply suitable policies to improve lending climate.”
“To give relief, the commercial banks from liquidity buffer, BB finds no alternative but to decide to ease the rules of consumer credit. The new BB rules regarding ‘home loan’ would come to an effect after issuance of a circular,” he said.
The central bank official, however, said that the surplus liquidity in the banking system is not only holding back expansion of the bank’s business but also the economic growth.
Earlier, the central bank relaxed policy on car loan allowing the commercial banks to invest more in the automobile sector.
Under the new rules, the banks are now allowed to provide loan for purchasing vehicles at a maximum debt-equity ratio of 50:50 instead of 30:70 earlier.
 “The relaxed policy on car loan has provided an opportunity to the commercial banks to expedite their credit in private sector,” said the BB official, adding, “Under the new policy scheme, the banks are now allowed to disburse Tk 40 lakh from Tk 20 lakh for purchasing cars for both personal and organisational use”. Earlier, in January 2012, the central bank squeezed the consumer financing including the car loans as the banks were facing huge liquidity crisis at that time.
 “But the scenario has been changed and as the banks are now sleeping with idle money amid sluggish business due to the political uncertainty and infrastructure bottleneck,” he said.
Against the backdrop, the central bank has decided to relax the home loan policy to gear up the credit growth in the private sector, he said.