The Bangladesh Bank has relaxed the cash reserve ratio (CRR) for offshore banking units (OBU) of the country's scheduled banks with a view to reduce cost of fund and to make the OBU operations more attractive.
The central bank on Thursday issued a circular, slashing bi-weekly average CRR rate from 4 percent to 2 percent and daily CRR rate to 1.5 percent of the average total demand and time liabilities.
The reduced CRR rate will be effective from July 1.
Earlier, the banks were supposed to maintain CRR at the same rate for offshore banking units as it was applicable for domestic banking operations.
Currently, banks are supposed to maintain 4 percent on bi-weekly basis as CRR and 3.5 percent on daily basis as CRR of average total demand and time liabilities.
Bankers have been demanding a lowered CRR rate for the OBUs as the cost of CRR maintenance was making fund sourcing costly from them, and harming their competitiveness.
A senior official of the central bank said the lower CRR requirements would be helpful for the scheduled banks to become more competitive in the global market.
At present, the country's 35 banks are active in offshore banking. Most of them are doing import and export bills discounting business, and working for extending long term foreign currency financing facility to the corporate entities.
The central bank has also enhanced the source of fund for the OBU operation.
As per the relaxed provision, the banks would be allowed to use 30 percent of their total regulatory capital mobilised by domestic banking operation for OBU.
Earlier, the permittable limit was 20 percent of banks' regulatory capital.
The Bangladesh Bank, however, said the source of funds for offshore banking operation must be deposits and borrowings.
The revised guidelines have also allowed OBUs to borrow from juristic persons not residing in Bangladesh to lend funds to others. This must be done in compliance with relevant requirements and approved by the Bangladesh Bank's Foreign Exchange Investment Department.