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Idle funds are not idle

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14th-Sep-2019       
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ALTHOUGH the experts have presumed that hasty move to withdraw idle funds from the accounts of the state-owned bodies could pose risk of a liquidity crisis in private commercial banks, the media reported that Finance Minister AHM Mustafa Kamal ruled out the possibility of any such crisis. According to bankers, there might be a severe liquidity crunch  due to execution of the move to mop up 75 per cent of estimated Tk 2,12,100 crore deposit held by 68  autonomous, semi-autonomous, statutory authorities, public non-financial corporations in banks. The government's move to divert state-owned corporations' funds to the exchequer has already raised liquidity concerns as the panic-stricken investors continued selling shares that pulled down DSEX index by 1.51 per cent, or 75.78 points on Wednesday, a 32-month low.
The problem would not be acute for the big banks as they could collect deposits. But it's apprehended that small and new generation banks would face problem since they highly dependent on long-term deposits by the government organisations. As per official statement, the move has taken to bring the surplus funds into its exchequer to ensure 'better use' of it as Tk 2,12,100 crore was remaining idle with different banks. But we're very much uncertain, whether the move was smart enough to save the dying banking sector!
At this stage, we fear if the government quickly siphons off the funds the liquidity crisis will be severe. The government decision has come at a time when deposits in current accounts of all banks decreased 3.2 per cent to Tk 114,430.0 crore in July from Tk 118,217.9 crore in June. Besides, the time bound deposits grew only 0.61 per cent during the aforesaid period. If the government's decision is fully executed the banks will be forced to borrow money from the call money market and depositors at a higher interest rate to meet the gap.
We don't see any visible reason to withdraw the deposits from the banks terming it "idle funds" when most of them are fighting for the survival being cheated by big loan defaulters.  How the funds could be called idle since the banks have invested those in different businesses after collecting them from the government bodies?

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