Call money market: A safe-haven for NBFIs

Last week, the call money rate touched its lowest level at 5.00 per cent and traded between 5.50 per cent and 9.00 per cent in most deals. But the rate for non-bank financial institutions was higher between 8.62 per cent and 9.00 per cent. Normally banks charge higher rates on non-bank financial institutions for call money in comparison to their lending the call money to other banks.

call money“Call money market has become a good place for NBFIs as the rate remains very low compared to lending rates of NBFIs since long”, said a central bank official. “They borrow money from call market and lend the same to their clients at higher rates”, he added.

More than 30 non-bank financial institutions borrowed money from the call money market during the last two weeks and it is a regular practice. Banks, however, charge higher interest on them. NBFIs several times urged the central bank to make the market fully market driven.

In fact, the call money market is fully dominated by commercial banks and the rate is not determined by the market forces as dealing method is bilateral through over telephone. Money market experts say a sound and transparent money market is necessary for banks and bon-bank financial institutions and ardent tasks to develop the financial system in an economy like Bangladesh. A common e-trading platform, therefore, remains a long cherish demand of money dealers of banks and NBFIs in Bangladesh.

Having a multi-faceted financial system, which includes non-bank financial institutions, can protect economies from financial shocks and recover from those shocks. Because, NBFIs provide multiple alternatives to transform an economy’s savings into capital investment, which act as backup facilities should the primary form of intermediation fail.

A nonbank financial institution (NBFI) does not have a full banking license and cannot accept deposits from the public, but they facilitate alternative financial services, such as investment, risk pooling, financial consulting, brokering, money transmission, and check cashing. NBFIs are a source of consumer credit (along with licensed banks). In Bangladesh, the major business of most NBFIs is leasing, though some are also diversifying into other lines of business like term lending, housing finance, merchant banking, equity financing, venture capital financing etc.

The good news is that NBFIs are now focusing some new areas of business such as ‘pharmaceuticals and chemicals’,’ iron, steel and engineering’, ‘garments and accessories’, ‘food & beverage’ and ‘agro industries and equipment’. To finance their projects, they sometimes face cash problems and rush to the call money market.

The central bank data also confirmed that the volume of daily transactions in call money market exceeded Tk 5,491.00 crore every day and the four state run banks -Sonali Bank, Agrani Bank, Janata bank and Rupali Bank remained the leading lenders of the market. Among the NBFIs, ICB, Lanka Bangla, Prime Finance, Bay Leasing, BIFC, Delta Brac Housing, FAS Finance and Investment Ltd, Far East finance, IDLC, IPDC, IDFC International Leasing were the leading borrowers.

Surplus liquidity has become a great concern for banks as it is eating away their profitability and hurts the economic growth where private investment is necessary. But credit flow to private sector remained stagnant since long. This has piled up a huge amount of surplus funds with more than 20 banks and opened ample scope for non-bank financial institutions to manage funds at low rates.

The overnight call money rate shot up to its high nearly 10 per cent last month as some banks faced liquidity crunches. The rate has come down slightly in recent days due to maturity of T-bills.

-The Daily Observer