Staff Reporter :
The amount of cash held outside commercial banks’ vaults surged for the ninth consecutive month from November 2023 to July 2024, driven by inflationary pressures and diminishing depositor confidence in the banking sector.
The total volume of currency outside banks reached Tk 2,91,630 crore in July, up from Tk 2,90,436 crore in June, Tk 2,70,658 crore in May, and Tk 2,64,349 crore in April.
Similarly, the out-of-bank currency amounted to Tk 2,61,195 crore in March, Tk 2,57,574 crore in February 2024, Tk 2,57,295 crore in January 2024, Tk 2,54,860 crore in December 2023, and Tk 2,48,441 crore in November 2023, according to data from the central bank.
Experts attribute this behavior to the ongoing inflationary spiral, which has eroded the purchasing power of households.
With inflation remaining above 9% for the 18th consecutive month since March 2023 and wage growth lagging behind for 31 straight months, many fixed- and low-income households are forced to withdraw more cash to meet basic living expenses.
“The high cost of living is pushing people to spend more, often after withdrawing their savings from banks.
Moreover, uncertainty around the banking sector, particularly in light of challenges faced by several banks, is prompting depositors to pull out their money,” said one financial expert.
Adding to the pressure, political instability in July further exacerbated the situation.
Nationwide protests, organised by the Anti-Discrimination Students Movement demanding reforms to the government job quota system, intensified in early July, leading to a curfew and an internet blackout from July 19.
The unrest culminated in the resignation of Prime Minister Sheikh Hasina on August 5, after 15 years in power, and her subsequent flight to India.
These events further fueled fears of prolonged instability, prompting many to withdraw cash in anticipation of potential restrictions and continued turmoil.
During this period, high-profile figures, including politicians and business leaders, were also reported to have moved significant amounts of money out of banks, foreseeing shifts in the political landscape.
Banks, in turn, have struggled to retain deposits despite efforts to increase interest rates after the lending cap was lifted in July 2023.
Despite these measures, many institutions faced a net outflow of cash, with some banks seeing more withdrawals than deposits.
As a result, total deposits dropped by Tk 8,197 crore, falling to Tk 17,34,026 crore in July from Tk 17,42,224 crore in June (excluding interbank and government deposits).
At the same time, loan disbursements also saw a decline, decreasing by Tk 3,882 crore in July to Tk 20,85,448 crore, down from Tk 20,89,330 crore in June.
The increase in cash outside banks is particularly concerning for commercial lenders already grappling with liquidity issues.
While cash outside banks had been gradually declining from June 2023 through the first few months of FY ’24, the reversal since November 2023 has compounded challenges for the sector.
The future remains uncertain as the political landscape continues to evolve. However, the rise in out-of-bank currency serves as a stark indicator of the public’s deepening distrust of the financial system and growing concerns about the broader economic and political climate.