The inter-bank repo rate has gone above the call money rate, leading to serious problems for some of the primary dealer (PD) banks, sources said.

Some banks, now basking in sufficient liquidity, have been setting their interest rate at as high as 18 per cent on lending to PD banks against government securities, while the call money rate is hovering at around 15 per cent.

The Bangladesh Bank (BB) is mulling taking actions against, at least, four commercial banks for charging higher interest than call money rate on inter-bank repo deals on receipt of complaints in this regard.

At least two private and two foreign banks are now engaged in inter-bank repo deals with mostly primary dealer banks, now experiencing liquidity shortage.

Under the inter-bank repo system, four banks extended liquidity facility amounting to Tk 23.5368 billion at interest rates ranging between 14 per cent and 18 per cent on May 27 when the call money rate was 15 per cent. One foreign bank was the market leader in the inter-bank repo deals on the day involving a transaction of Tk 15.0 billion.

"The inter-bank repo rate should not exceed the call money rate, as it is a highly secured transaction between the lending and borrowing banks. The call money deals do not require collateral except the normal bank guarantee in the overnight transaction," a senior fund manager of a primary dealer bank said.

"But in the inter-bank repo deals, the government securities are always used as collateral. So the inter-bank repo rate should remain below the call money rate."

"The BB put a cap on call money rate at 15 per cent for the last two months. But it did not impose any such cap on the inter-bank repo rate, which is not justified," he added.

The inter-bank repo deals have been taking place since 2003 as per the BB guideline. But never before the inter-bank repo rate had exceeded the call money rate, the bankers claimed.

Some bank officials lodged formal complaints with the BB last week. The BB officials assured them of investigating the matter seriously and take proper action. However, the central bank is yet to take any measure to help keep the inter-bank repo rate below the call money rate, the bankers said.

"It seems some banks having idle money are not interested to be involved in the inter-bank call money market as they found the inter-bank repo market suitable for making higher profit. But it is irrational," a senior official of the BB told the FE.

"The central bank has been informed about the inter-bank repo transaction at higher rate than the call money rate. The BB officials are currently scrutinizing the matter to take formal action."

The Financial Express/Bangladesh/ 4th June 2012