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5 new banks likely to be PDs of govt securities December 1

imagesFive newly-established commercial banks are likely to be enlisted with the central bank as primary dealers of the government securities from December 1, said officials of the Bangladesh Bank.

The five banks are NRB Commercial Bank, South Bangla Agriculture and Commerce Bank, Midland Bank, Farmers Bank and Meghna Bank.

BB officials said the central bank recently at one-to-one meetings with the five banks asked them to take preparations to act as PD banks.The five banks, however, sought six more months before their enlistment as PD banks, but the central bank rejected their pleas, they said.

The BB recently gave licences to nine new commercial banks on condition that they would have to act as PD banks, a BB official told New Age on Monday (18 November 2013) .
Union Bank, one of the nine banks, will not play as a PD bank as it later converted its business to Islamic banking from traditional banking, he said. He said three other newly-established banks would not be able to act as PD banks right now as they were yet to collect deposit from clients, he said.

The three banks are Midland Bank, NRB Bank and NRB Global Bank.

PD banks have to participate in the auction for government securities to make possible government borrowing.
Twelve scheduled banks are now acting as PD banks.

The BB official said that the central bank would relax the rules of investment in the government securities for the new banks.

The central bank will set minimum Tk 1 crore for a new bank to invest in the government securities on a mandatory basis in each auction.

The five new banks will purchase the government securities if the bids for an auction from the 12 PD banks fail to meet government demand, he said.

As per the BB regulation, treasury bills and T-bonds are devolved on PD and non-PD banks if PD banks fail to acquire the entire securities put in an auction, he said.

Under the process, 60 per cent of the unsold securities are distributed to PD banks and the rest 40 per cent to non-PD banks.

The BB official said that the new banks would face difficult situation due to lower deposit collection by them if the existing rules for distribution of the government securities would be imposed on them.

So, the BB has decided to set minimum Tk 1 crore for the new banks to invest in T-bills and T-bonds in an auction if the government securities put in the sales need to be devolved, he said.

The BB usually holds 12 to 13 auctions for government securities in a month to facilitate government borrowing, he said.
The central bank official said that the new banks would not face crisis right now as PD banks and other commercial banks were now submitting sufficient bids in the auctions.

The majority of the banks are now enjoying enough liquidity due to a stagnant investment situation in the country amid political unrest, he said.

So, banks have been purchasing government securities in the last few months to use their idle fund, he added.
NRB Commercial Bank managing director Dewan Mujibur Rahman told New Age on Monday that he had requested the BB to give more time before enlisting his bank as a PD bank. He said that the operation of his bank was yet to get full tempo.
He, however, thanked the BB for relaxing the rules for them.

-AKM Zamir Uddin


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