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Banks cold-shoulder fixed deposits

Sajjadur Rahman
Fixed deposits are discouraged by private commercial banks (PCBs), as evident in the low interest rate they now offer.
The banking sector thinks this is because of huge surplus cash and declining investment demand.
The interest PCBs offer its clients hardly crosses 8 percent on deposits, a reverse to the last year scenario when they had been in a race to lure deposits with as high as 13.5 percent rate.
“Presently, investment demand is at its lowest ebb. The high cost prompts us not to encourage fixed deposits,” said Anis A Khan, managing director and chief executive officer of Mutual Trust Bank.
The issue came up recently for a Prime Bank board review, which concluded to discourage such deposits, a director of the bank said preferring anonymity.
The situation is more or less same with all banks operating here. Banks discourage because they are not in need of money, but the clients' point of view is the scope for high return.
for which they prefer depositing money for a period fixed.
Total deposits of the banking sector stood at Tk 259,495 crore at the end of March 2009 and fixed deposits still remain as a major source of bank funds.
The central bank data on different types of deposit accounts with the banks show a 45 percent share of the fixed type at the end of March. It was around 43 percent three months back. The amount of fixed deposits increased by over Tk 8,000 crore during the period.
Savings deposits slipped to 22 percent at the end of March 2009 from nearly 23 percent in December 2008. Short-term deposit constitutes over 12 percent and pension scheme nearly 8 percent of the total deposits.
Globa) economic slowdown and domestic energy crisis have caused a serious decline in investment demand since mid-2008. Gas connection to industries is fully stopped at the moment.
The situation has become so acute that banks are now over-
flowed with cash. Excess liquidity in the banking industry reached over Tk 35,000 crore up to June 2009, according to Bangladesh Bank statistics.
"What will we do with deposits, especially with the costly fixed deposits?” questioned Anis A Khan, pointing his finger at less than one percent gain from the fixed deposits.
Pubali Bank, the country's largest private sector bank, has directed its branches to boost up investment to absorb the excess liquidity.
“We are taking fixed deposits at only 8 percent interest rate,” said Helal Ahmed Chowdhury, Pubali's managing director.
Mustafa K Mujeri, director general of Bangladesh Institute of Development Studies (BIDS) said there is no other option than raising credit demand and improving investment climate.
"Virtually, there is no investment demand. If the situation persists, the rate of interest for deposits can go down further,” said Mujeri, also the immediate past chief economist of the central bank.
sajjad@thedailystar.net