Cash-strapped Farmers Bank yesterday got a shot in the arm after the Bangladesh Bank agreed to provide short-term loan amounting to Tk 96 crore by way of repo to meet its instant liquidity demands.

Repo is a short-term loan from the central bank of a country to a commercial bank in the event of any shortfall of funds. A bank has to count 6.75 percent interest if it takes loans through the repo from the Bangladesh Bank.   

The last time the instrument was used by the Bangladesh Bank was back in August 8 last year, when a bank took out a loan for Tk 47.50 crore.

"Farmers Bank had to take the loan because of acute liquidity crunch," said a BB official. For instance, on Monday, the bank had just Tk 65 lakh in its current account with the central bank, according to BB.

Earlier this month the bank twice failed to honour a cheque worth Tk 35.44 crore presented by the Bangladesh Telecommu-nications Company Ltd due to fund shortage. The state-owned telecom firm eventually got the sum.

The bank tried to collect funds from different banks but could not get the amount it needed, the BB official said, adding that the four-year-old bank pledged securities worth Tk 102 crore for the loan.

Typically, lending through repo occurs on an overnight basis, but banks can renew the loan upon mutual understanding.

AKM Shameem, managing director of Farmers Bank, told The Daily Star yesterday that the loan was taken to meet the demand for cash from clients. He, however, declined to elaborate on the matter.

The scam-hit bank sought a deposit support amounting to Tk 300 crore from the central bank on November 9 to tackle its liquidity crunch but was denied.

Farmers Bank has failed to maintain the statutory liquidity ratio and cash reserve ratio as stated in the Banking Company Act, as a result of which it has incurred penalty of Tk 18 crore so far.

It also could not pay back the amount borrowed from call money market.

The bank owes Tk 124 crore in the call money market and the amount is being rolled over since January, according to data from the BB.

In a desperate bid to attract funds, the bank is now offering up to 12 percent interest for deposit -- the highest in the market.

As of September, the bank's weighted average interest rate on deposits is 8.79 percent in contrast to the industry average of 4.9 percent.

The high interest rates have pushed up the bank's cost of funds, which in turn has sent its lending rate spiralling up to about 14 percent in contrast to the industry average of 9.45 percent.

As of August, the bank's total deposits amounted to Tk 5,170 crore and loan portfolio Tk 4,854 crore.   The bank's advance-deposit ratio has been above 85 percent for several months, which goes against central bank rule.