The Centre for Policy Dialogue yesterday came down hard on the finance ministry for the host of moves it made earlier this month to ease the private banks' liquidity crunch, undoing the tight monetary policy announced in January.

“This has seriously undermined the independence of the central bank and has dented its credibility,” said the private think-tank in an analysis on the state of economy and recommendations for budget for fiscal 2018-19.

One of the steps taken by the finance ministry is lowering the banks' cash reserve requirement, which is a specified minimum fraction of the total deposits that banks must hold as reserves either in cash or as deposits with the central bank, by one percentage point to 5.5 percent.

The move is likely to encourage the poorly performing private banks to continue with their business-as-usual practices and may also encourage banks to lend more aggressively and indiscriminately.

“The attempt on the part of the finance ministry to rescue the private banks through CRR reduction was in fact similar to government's recapitalisation support for the state-run banks.”

Between fiscal 2009-10 and fiscal 2016-17, the government had allocated Tk 15,705 crore for the purpose of recapitalising the state lenders.

“Such support has not improved the performance of these banks,” said CPD Research Fellow Towfiqul Islam Khan, who presented the analysis at a press conference at the CIRDAP Auditorium.

Rather, the amount of the non-performing loans had piled up on a continuous basis over the past years.

“Now I think the banking sector has turned into an orphan and its protectors are abusing it,” said CPD Distinguished Fellow Debapriya Bhattacharya.