The cash outflow from banks has sharply increased in August from July this year as the withdrawal of funds went up by Tk 89.79 billion in the month.

The country’s banks witnessed a rising cash withdrawal as the people required huge funds to maintain their livelihood because inflation went up to hit a double digit figure in the recent months.

The people might have interests in investing somewhere else rather than depositing in the commercial banks, experts and economist said.

They said that it was abnormal situation and the government will have to identify the reasons why depositors withdraw from banks systems by the people.

They pointed out that the people might have felt comfortable by keeping their money in their hands rather than depositing in the commercial banks as they are not confident over the commercial banks.

The Bangladesh Bank’s (BB) monthly economic trend revealed that the currency outside the banks has increased by Tk 89.79 billion to Tk 642.54 billion in August while in July it was Tk 552.75 billion.

The outflow of cash during eight months of the year (January to August) increased by Tk 121.70 billion, while it increased by Tk 103.89 billion during last 12 months (January 2010 to January 2011).

The cash outflow from banks in August this year, however, was Tk 144.34 billion more compared to that in August last year. The banking sector insider said that five big commercial banks held Tk 200 billion cash at present while other banks are in the shortage of funds.

According to the Bangladesh Bank data, the liquidity of banking sector stood at Tk 330 billion as on October 27.
Besides, private sector credit marked a 21.18 percent growth while the rise in deposit with commercial banks was 12 percent to 14 percent.

In the current year's budget, the inflation was set at 7.5 percent on an average. Inflation crossed the budgetary target several months before and reached 11.42 percent in October this year, compared to 11.97 per cent a month before, according to Bangladesh Bureau of Statistics.

Food inflation declined in October mainly due to a drop in the prices of some commodities such as rice, edible oil, lentil, sugar and onion as winter vegetable was available in the market. But, still the inflation is 13-year high. Food inflation fell by about 0.93 percentage point in October and stood at 12.82 percent.

Jahangir Alam, Executive director of the BB, while talking to daily sun made a different opinion on higher cash outflow from banks. “It is not true that people are not confident over the activities of commercial banks,” he asserted.
“Since the deposit growth of the commercial banks is still good, how it can be said that people lost their confidence over the banks,” he questioned. But, he could not tell the reason why people withdraw more money from commercial banks.

Alam, however, said one of the reasons can be requirement of more cash to meet increased living costs for higher inflation owing to price hike of essential commodities in the kitchen markets.

Former governor of BB Salahuddin Ahmed said: “The central bank authority should examine the reason behind withdrawal of huge money from the banks.”
He also said the people are not pouring their money into shares as the stock market is not doing well for last eight months. People may invest their capital in buying lands as the price of land is increasing outside the capital, he added.

Salahuddin also held rising inflation rate for more cash outflow to maintain their livelihoods amid the price hike of essential commodities.

Source: The Daily Sun/ Bangladesh/ 24th Nov 2011