Banks are now under severe stress due to financing for Covid-19-led stimulus packages. How much they would be able to fund within the atmosphere the Bangladesh Bank has created through its several policies and easing endeavours is still unknown. However, we wish their success particularly in helping the economy combat the impacts of Corona virus. Latest data on trends of deposits make us worried. Are we heading towards deposit deficiency? Undeniably the present time is not conducive to boosting deposits. Even then the banks must defuse the financial dangers to survive, and to service the economy pursuing a strategic approach.
Three types of fund are required : (1) to meet usual customer demands and the needs of banking operations; 2) to meet the fund required by the government for deficit management; and (3) to meet unforeseen disastrous situations. In an economy like ours, vibrant growth of deposits has no substitute for funding in all situations. Unfortunately, we are now experiencing deposit deficiency.
Table shows that as a whole deposit growth rates are falling and the downward trend began in September 2019. December 2019 registered a growth. Such growth is caused by cash inflow and interest crediting. Growth by interest amount may not immediately turn into cash inflow. Decline in deposit balance in March 2020 and insignificant growth in April 2020 may be attributed to the impacts of COVID-19. Recent fall may also have the effects of the lower interest rate. That deposits growth keeps declining is not a good sign at all when the economy is famished for fund.
Amidst all adverse circumstances, the banks must assign top priority to the challenging task of rapid deposit mobilisation. Three types of preparatory efforts are required on the part of bank management.
First, they are to prepare a strategic plan targeting each category of present and potential depositors. So it is very important to know several categories of depositors as well as the government decision on public sector fund. Scheduled Banks Statistics (October-December 2019) reveal that banks obtain deposits from two broad sectors -- public sector (around 20 per cent) and private Sector (80 per cent). As regards the deposits of public sector, the government decision is that 50 per cent of the government fund for ADP projects of the autonomous and the semi-autonomous bodies, and of the own fund of government, semi-government, autonomous bodies and semi-autonomous bodies may be kept in private banks or non-bank financial institutions or in both. Relationship management would determine the extent of access to this fund.
Greater emphasis should be given to mobilising deposits from the private sector. Categories of private sector depositors are composed of corporate bodies, and household-level individuals including service holders (salaried persons), businessmen, housewives, non-resident Bangladeshis (NRB), professionals and self-employed persons (doctors, lawyers, contractors, taxi drivers, architects, consultants.), farmers/fishermen, students, retirees and others. Corporate sector businesses constitute the single largest group of depositors (sharing more than 25 per cent of bank deposits).
Another largest group of depositors comprises serviceholders (salaried people) who contribute 18 per cent of bank deposits. They are less affected by COVID-19. Businessmen's individual accounts provide 11 per cent of bank deposits. After individual accounts of businessmen, a good source of deposits is the group of housewives supplying about 10 per cent of bank deposits. Banks may also target professionals and self-employed persons and NRBs (as mentioned earlier) who currently share more than 7 per cent of bank deposits.
Second, bank authorities should arrange for enlightened negotiations with the government, Bangladesh Bank, and the professional body of bankers with an agenda of examining the possibility of revising single digit interest structure. Certainly, it is not high time to claim a change in the single digit inertest rates introduced very recently. But in view of shrinking deposits, and the need for huge fund to cope with COVID-19 impacts, and for deficit financing (signaled by the Budget 2020-21), rethinking, restructuring and above all rationalising the current interest rates would not sound unreasonable.
In the event of government's refusal to revise the interest rates upwards, the banks can present to the government a proposal of at least converting the present single digit interest structure of 6-9 per cent into weighted average version. The overall deposit-mix of the banks admits of some scope for variable interest rates with the weighted average rate of 6 per cent remaining unchanged.
Third, the bank authorities need to pay attention to strengthening their bargaining power with facts and figures for a justified role in negotiation. Some paperwork needs to be done on deposit growth behaviour, proposed deposit interest rate that minimally satisfies the depositors, lenders, the banks and the economy, and on impacts of single digit interest rates. We believe that bank management is aware of the fact that if deposits by the people of lower and middle income groups holding more than 68 per cent of total deposits are not used for lending, the leading borrowers ( less than 1 per cent of total loanees ) would obtain loans not more than 50 per cent of their actual amount.
In fine, it may be suggested that designing strategies for deposit mobilisation has three core directions. First direction is developing effective and sustainable relationships with each category of depositors (current and future).The spirit of relationship must be totally humane, not mechanistic or commercial. We have to keep in mind that the banks live on depositors' money. Second direction is a drive for better deposit products that enhance values to depositors in terms of greater return on savings, indirect incentives, fascinating customer service with unfading quality, and so on. Third direction encompasses the activities of research and development for evaluating and improving the quality and effectiveness of decisions regarding deposits. In a competitive environment, the authority of each bank would naturally formulate its strategies in its own way. We expect that no bank would delay in launching the drive for more and more deposits to save us all.
Haradhan Sarker PhD is an ex-Financial Analyst, Sonali Bank & retired Professor of Management.