A stiff competition in the banking industry to lure depositors by raising interest rates, which  started since the beginning of New Year,  has escalated further, showing a sign of severe liquidity shortage.Banks raised their rates on savings, fixed or term deposits up to more than 15 per cent after central bank scrapped the cap on lending rates.

The banks having less current account or savings accounts became aggressive to give a boost to the cash flow, cashing in on the central bank’s latest move, according to the banking circle.Stock investors also divert their funds from the capital market to banks to take advantage of higher deposit interest rate to earn more from stock investment that declined around 20 per cent since the beginning of 2012.

“In the wake of current volatile global economic situation, we believe that the deposit rates will be a highly beneficial and attractive source of returns for our customers,” said a top banker.On January 4, Bangladesh Bank (BB) had lifted the cap on lending rate for all sectors and items barring only two -- agriculture and export-- to facilitate the country's overall economic growth through supporting investment activities in different fields. 

The savings deposit rates have been raised up to 14 per cent in January, well ahead of 10 per cent in the same month a year ago. Among the 30 private commercial banks (PCBs), Pubali is probably the first bank to  raised deposit interest rate soon after the withdrawal of the lending cap.

Later, other PCBs and foreign banks joined the race.Uttara Bank has raised the interest rate to 13.50 per cent from 12 per cent, Islami Bank to 10.50 per cent from 8 per cent, National Bank Ltd  14.50 per cent from 12.50 per cent, IFIC Bank  14 per cent from 12 per cent, NCC Bank 13 per cent from 12.13 per cent, Standard Bank 14.50 per cent from 12 per cent,  City Bank 13.50 per cent from 12.0 per cent and Bank Asia 13.00 per cent from 12.0 per cent, show BB data.

 Among the nine foreign banks operating in Bangladesh, State Bank of India and HSBC raised 12 per cent each, and Al-Falah made it 13 per cent from 11 per cent. “This is a unhealthy competition, as banks need cash now,” said ex-Bangladesh Bank governor Salehuddin Ahmed.

Savings have become almost difficult for the low and limited income people because of rising inflation, he pointed out.The banks need to act rationally while fixing deposit and lending rates in order to ensure stability in the country's money market, he said.Meanwhile, the Association of Bankers, Bangladesh (ABB) has asked its member banks to re-fix the interest rate on deposits at a maximum of 12.50 per cent and fix the same on lending at a maximum of 15.50 per cent. 

The decisions were taken at a recent emergency meeting of the key bankers' body.The move came after businesses expressed their fear over an adverse impact of the lending rate hike to a substantial level following the withdrawal of its capping.

The Independent/Bangladesh/ 12th Feb 2012