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Capital Challenges: Unpacking the Implications of Banks Borrowing 81 Thousand Crores in Just Five Days to Stabilize Liquidity


Capital Challenges

The tumultuous shifts in the financial terrain of our nation in recent days have cast a shadow over the stability of commercial banks, grappling with a precarious dual crisis characterized by a severe liquidity crunch and a shortage of dollars. The repercussions of this financial turmoil are echoing through boardrooms and trading floors, prompting banks to take unprecedented measures to navigate these uncharted waters. In an unexpected turn of events, financial institutions find themselves tethered to a lifeline extended by the central bank and the bustling Kolmani market, where a staggering 81 thousand crores have been borrowed in a mere five days. As economic landscapes evolve, this article endeavors to unravel the intricate layers of this crisis by delving into its historical context, identifying the root causes behind the liquidity crunch, and presenting a comprehensive exploration of the diverse perspectives that surround this pivotal matter.

To understand the gravity of the current financial predicament, it is imperative to trace the historical threads woven into the fabric of our nation’s economic evolution. Examining past financial crises and their resolutions provides invaluable insights into potential remedies and preventative measures. The cyclical nature of economic challenges, intertwined with global market dynamics, emphasizes the need for a nuanced perspective. Beyond the immediate concerns, a broader lens will be applied to assess the historical ebbs and flows that have shaped the financial ecosystem, shedding light on patterns that may hold clues to both cause and solution. By contextualizing the present within the broader tapestry of economic history, a more profound understanding of the current crisis emerges, enabling stakeholders to navigate the complexities with greater foresight.

Unraveling the reasons behind the present liquidity crisis requires a meticulous exploration of the intricate web of economic factors at play. The convergence of global economic trends, regional financial policies, and local market dynamics has created a perfect storm, leading to the present conundrum. Analyzing the root causes involves scrutinizing regulatory frameworks, market behaviors, and external influences that have collectively precipitated the current scenario. From sudden shifts in investor sentiment to the impact of geopolitical events, this article aims to dissect the multifaceted nature of the liquidity crisis, offering a comprehensive overview that enables readers to grasp the intricacies involved. By peeling back the layers of economic variables, a clearer picture emerges, setting the stage for informed discussions and potential solutions.

The liquidity crisis has sparked a spectrum of perspectives within the financial community, with stakeholders and experts offering diverse analyses and prescriptions for the path forward. Understanding these varied viewpoints is crucial for fostering a well-rounded discourse that can inform strategic decision-making. Some argue for swift policy interventions, emphasizing the need for immediate measures to inject liquidity and stabilize the financial system. On the other hand, proponents of systemic reforms advocate for a more profound restructuring of financial institutions and regulatory frameworks to address underlying vulnerabilities. This article aims to present a balanced exploration of these perspectives, allowing readers to grasp the spectrum of opinions and considerations that will shape the ongoing discourse surrounding the nation’s financial resurgence.

History of challenges:

The unprecedented borrowing spree, climaxing with a staggering 26 thousand 739 crores acquired on a single day, serves as a poignant indicator of the depth of the liquidity crisis currently gripping commercial banks. To truly fathom the gravity of this situation, it is imperative to contextualize it within the broader historical landscape of financial challenges faced by our nation. This surge in borrowing, reminiscent of past economic downturns, evokes memories of fiscal tightening and strategic maneuvers undertaken by banks in times of economic turbulence. The sheer magnitude of these transactions not only underscores the urgency with which financial institutions are seeking relief but also signals a critical juncture in the nation’s economic trajectory.

At the heart of this liquidity crisis lies a confluence of factors that have gradually unfolded over time, intertwining with the nation’s economic evolution. The dwindling export earnings and remittances have cast a long shadow over the revenue streams that traditionally buoyed the financial resilience of commercial banks. Concurrently, the imbalance between credit flow and deposits has exacerbated the strain on liquidity, with the former outpacing the latter. This misalignment between assets and liabilities has far-reaching implications, challenging the very foundation of financial stability. As we navigate the complex terrain of economic shifts, it becomes apparent that the historical context provides a crucial backdrop for comprehending the intricacies of the present liquidity predicament.

Furthermore, the role of the central bank in this crisis cannot be understated. The liquidation of dollar reserves as a strategy to mitigate the dollar shortage, while necessary to stabilize the external value of the currency, adds an additional layer of complexity to the liquidity challenge. This deliberate intervention by the central bank underscores the interconnectedness of global and domestic financial markets. As dollars are sold from reserves to address the immediate currency crisis, the repercussions reverberate through the entire financial system, amplifying the strain on liquidity faced by commercial banks. Understanding this historical interplay between currency management and liquidity dynamics is pivotal for formulating effective strategies to address the current crisis and prevent similar challenges in the future.

Banks and the Central Bank:

In a desperate bid to navigate the turbulent waters of the liquidity crisis, commercial banks have turned to the central bank, seeking refuge in special liquidity support mechanisms. The gravity of the situation is underscored by the startling figures that reveal a borrowing spree of monumental proportions. Over the course of the last five days, a staggering 68 thousand crores have been procured from the central bank, predominantly facilitated through repo transactions – a financial maneuver where banks pledge securities in exchange for short-term loans. Notably, Wednesday emerged as the pinnacle of this borrowing surge, witnessing a record acquisition of 23 thousand 239 crores through repo transactions, marking the second-highest borrowing figure in recent memory.

Adding another layer to this complex financial web, commercial banks concurrently tapped into the resources of the Kolmani market, securing an additional 13 thousand crores. This strategic diversification of borrowing channels underscores the multifaceted approach adopted by banks in their quest for liquidity. The cumulative borrowing from both the central bank and the market surpassed the formidable threshold of 81 thousand crores in just five days, unveiling the depth of the financial quagmire faced by these institutions. This pronounced trend in massive borrowings vividly reflects the urgent and unprecedented need for funds among commercial banks, highlighting the severity of the liquidity crisis and the lengths to which they are compelled to go to shore up their financial positions.

As commercial banks lean heavily on the central bank for liquidity infusion, the dynamics of these transactions extend beyond mere financial assistance. The reliance on repo transactions, in particular, brings attention to the intricate dance between short-term relief and the collateralization of assets. The collateral exchanged in these transactions often consists of government securities, emphasizing the symbiotic relationship between the government and commercial banks in stabilizing the financial system. However, as this borrowing trend intensifies, questions arise about the sustainability of such measures and the long-term implications for both the banks and the central bank. An in-depth exploration of these intricacies is essential for unraveling the broader consequences of this unprecedented collaboration between commercial banks and the central bank in the face of the ongoing liquidity crisis.

In conclusion, the symbiotic dance between commercial banks and the central bank unfolds as a critical chapter in the narrative of the current financial upheaval. The extraordinary magnitude of borrowing, coupled with the diversification of sources, reflects not only the immediacy of the financial need but also the agility with which banks are adapting to secure essential liquidity. As this collaboration unfolds, it beckons a closer examination of the mechanisms at play, the collateralization of assets, and the sustainability of these measures in the long run. The evolving relationship between commercial banks and the central bank will undoubtedly shape the trajectory of financial stability, making it imperative to navigate this intricate landscape with a keen eye on both short-term relief and the broader implications for the nation’s financial health.

Causes of Liquidity Crisis:

The intricate web of factors weaving together to engender the present liquidity crisis reveals a confluence of challenges that have intensified financial strain. A primary driver of this predicament is the marked decline in export earnings and remittances, traditional pillars that once bolstered the economic resilience of the nation. The ramifications of this decline reverberate through the financial system, creating a ripple effect as the usual inflow of funds from overseas sources dwindles. The adverse impact on liquidity becomes particularly pronounced as commercial banks grapple with reduced revenue streams, exacerbating the prevailing financial crunch.

Compounding the liquidity crisis is the government’s financial strategy, marked by a pronounced reliance on commercial banks for loans rather than resorting to money printed by the central bank. This strategic shift introduces a unique set of challenges as it places an additional burden on the already strained liquidity of commercial banks. The consequences are twofold – not only are these financial institutions tasked with managing their own liquidity challenges, but they are also compelled to accommodate the government’s borrowing needs. This dynamic significantly amplifies the pressure on available funds within the banking system, contributing to the severity of the liquidity crisis at hand.

Furthermore, the central bank’s heightened demand for dollars to cover import expenses and service foreign loans emerges as a critical catalyst in the liquidity conundrum. As the central bank endeavors to secure the necessary foreign currency reserves, it places substantial stress on the available liquidity within commercial banks. The increased outflow of funds from these institutions to fulfill the central bank’s demand further depletes their liquidity reserves, exacerbating the overall crisis. This intricate dance between the central bank’s international financial obligations and its impact on domestic liquidity underscores the interconnectedness of the global and domestic financial landscapes.

In essence, the causes of the liquidity crisis are multifaceted, rooted in both domestic and international dynamics. The decline in traditional revenue sources, coupled with the government’s borrowing practices and the central bank’s strategic maneuvers, collectively form a perfect storm that has engulfed commercial banks in a severe liquidity crunch. Understanding the nuanced interplay of these factors is crucial for devising effective strategies to mitigate the immediate challenges and fortify the financial system against similar vulnerabilities in the future.

Government Loans and Central Bank Policies:

The intricate dance between the government’s reliance on commercial banks for loans and the subsequent policies enacted by the central bank unfolds as a pivotal chapter in the ongoing liquidity crisis. As the government increasingly turns to commercial banks for financial support, a notable consequence is the central bank’s strategic move to bolster funds through the sale of treasury bills. This shift in financial dynamics introduces a complex interplay, as the government’s borrowing practices directly impact the liquidity landscape within commercial banks.

The ramifications of this symbiotic relationship become glaringly apparent as commercial banks grapple with the dual pressure of purchasing dollars to meet external obligations and, simultaneously, funding the government’s fiscal needs. The strain on liquidity intensifies, creating a challenging environment for these financial institutions to maintain stability and fulfill their various financial commitments. The delicate equilibrium between managing the demands of the international market and fulfilling domestic fiscal requirements emerges as a critical tightrope walk, exacerbating the already complex liquidity crisis.

In response to the escalating liquidity challenge, the central bank adopts a strategic approach to provide short-term relief. Recognizing the interconnected nature of the financial ecosystem, the central bank leverages its position to re-lend money invested in government treasury bills by commercial banks. This maneuver injects much-needed liquidity back into the banking system, offering a temporary respite for financial institutions grappling with the intricate demands of both the government and the international market. While this serves as a crucial immediate measure, questions linger about the sustainability of such short-term solutions and the long-term impact on the stability of the financial ecosystem.

The delicate balance between government loans and central bank policies underscores the intricate relationship between fiscal and monetary strategies. The ongoing dialogue between these entities is not merely a response to the current liquidity crisis but also a reflection of the evolving dynamics of financial governance. As the central bank steps in to mitigate the immediate challenges faced by commercial banks, a broader conversation emerges about the need for comprehensive reforms that address the root causes of the liquidity crisis. Navigating this complex terrain requires a nuanced understanding of the symbiotic relationship between government fiscal practices and central bank interventions, setting the stage for informed policy decisions that can foster long-term financial resilience.

Interest Rates and Borrowing Costs:

The prevailing economic turbulence is further exacerbated for commercial banks with the recent surge in interest rates, casting a shadow over their financial landscape. This spike is evident across both the money market and term loans, introducing a new layer of complexity to an already intricate situation. The fixed interest rate at 9.25 percent, a benchmark for financial transactions, becomes a crucial anchor in this evolving scenario. However, the real impact is felt in the realm of term loans, where rates have surged beyond 11 percent. This substantial increase in borrowing costs for banks not only deepens the financial quagmire but also poses formidable challenges to their ability to manage liquidity and sustain operations.

The disparity between the fixed interest rate and the escalated rates on term loans serves as a stark indicator of the growing financial stress faced by commercial banks. The widening gap underscores the intensified pressures on these institutions, as the cost of borrowing escalates beyond anticipated levels. In this environment, managing financial resources becomes a delicate balancing act, necessitating astute financial planning to navigate the intricate landscape of fluctuating interest rates.

The central bank’s role in shaping these interest rate dynamics cannot be overlooked. The policy decision to raise interest rates is a strategic move aimed at curbing the flow of money in the market. However, this well-intentioned effort to manage market dynamics inadvertently contributes to the escalating borrowing costs for commercial banks. As the central bank adjusts interest rates to address broader economic concerns, the ripple effect is keenly felt by financial institutions, further complicating their ability to navigate the challenges posed by the liquidity crisis.

In essence, the surge in interest rates serves as a double-edged sword for commercial banks, intensifying the complexities of the liquidity crisis. On one hand, the central bank’s policy aims to address broader economic concerns, and on the other, it amplifies the financial burden on banks. The delicate interplay between these interest rate dynamics and the ongoing liquidity challenges accentuates the need for a holistic approach to financial governance. As commercial banks grapple with the repercussions of increased borrowing costs, the evolving scenario underscores the critical importance of adaptive financial strategies and the formulation of policies that strike a balance between market stability and the sustainability of financial institutions.

Perspectives on the Crisis:

1. Central Bank Perspective:

From the vantage point of the central bank, the intervention in the ongoing liquidity crisis is framed as an imperative step toward safeguarding the broader economic stability. The deliberate sale of dollars from reserves is rationalized as a strategic move to uphold equilibrium in the foreign exchange market. The central bank contends that this measured approach is essential to address the pressing challenges posed by a dollar shortage, thereby preventing a destabilizing impact on the national currency. By actively managing the foreign exchange market through this intervention, the central bank aims to mitigate the risk of currency devaluation and maintain a sustainable economic trajectory

Simultaneously, the central bank’s decision to extend financial support to commercial banks is portrayed as a calculated effort to alleviate short-term liquidity pressures. In this narrative, the central bank positions itself as a stabilizing force, proactively addressing the urgent needs of the banking sector. The injection of funds through repo transactions is characterized as a necessary lifeline, fostering financial resilience among commercial banks grappling with the dual challenges of a liquidity crunch and increasing borrowing costs. From the central bank’s perspective, these interventions are not only responsive to the immediate crisis but also integral to fortifying the overall financial infrastructure for sustained stability.

2. Commercial Banks’ Viewpoint:

Commercial banks, grappling with the brunt of the liquidity crisis, articulate a viewpoint that attributes the current predicament to a myriad of external pressures. From their standpoint, the decline in export earnings and remittances stands out as a significant contributing factor, exerting immense strain on the traditional revenue streams that have historically fortified their financial resilience. This external economic downturn is seen as beyond the immediate control of commercial banks, setting the stage for a cascade of challenges that have reverberated throughout the financial ecosystem.

Moreover, commercial banks highlight the increased cost of borrowing from the central bank as a substantial burden adding to their woes. The central bank’s interventions, while framed as necessary by the regulatory body, are perceived as exacerbating the challenges faced by commercial banks. The simultaneous demands of purchasing dollars to fulfill international obligations and funding the government’s fiscal needs intensify the strain on liquidity. Commercial banks contend that the dual pressure of rising borrowing costs and the surging demand for foreign currency creates a challenging financial environment, limiting their ability to manage liquidity effectively. From their perspective, a comprehensive resolution to the liquidity crisis necessitates not only immediate relief but also a strategic reassessment of the broader economic landscape and collaborative efforts to address systemic vulnerabilities.

3. Government’s Standpoint:

In the face of the ongoing liquidity crisis, the government articulates a standpoint that acknowledges the strain experienced by commercial banks while underscoring the imperative of financial discipline. From the government’s perspective, the decision to rely on commercial banks for loans, as opposed to resorting to money printing from the central bank, is portrayed as a responsible and prudent approach to fiscal management. Despite the immediate challenges this choice imposes on liquidity, the government contends that it reflects a commitment to long-term economic stability and sustainable financial practices.

The government’s perspective emphasizes the importance of avoiding short-term expedients that could lead to inflationary pressures and other adverse consequences. By opting for loans from commercial banks, the government asserts its commitment to maintaining financial credibility and preventing the devaluation of the national currency. From this viewpoint, the challenges faced by commercial banks in providing these loans are considered a necessary trade-off for fostering financial responsibility and discipline within the broader economic framework. While recognizing the immediate hardships, the government’s stance underscores the belief that enduring financial health requires measured, strategic choices, even in the midst of a liquidity crisis. This perspective sets the stage for a nuanced dialogue about the intersection of fiscal policy, liquidity management, and the overarching goals of economic resilience.

4. Economic Analysts and Experts:

Amidst the unfolding liquidity crisis, economic analysts and experts provide a critical perspective, contending that the current challenges extend beyond immediate liquidity concerns, revealing deeper systemic issues in the economy. One prominent argument posits that the crisis exposes a fundamental imbalance between credit and deposit flows within the financial system. Economists argue that the gap between the credit extended by commercial banks and the corresponding deposits received has widened, creating a structural vulnerability that transcends the current crisis.

In this nuanced view, some experts advocate for a more holistic and far-reaching approach to addressing the root causes of the crisis. Short-term interventions, while providing immediate relief, are deemed insufficient to remedy the underlying structural issues. Structural reforms, encompassing a comprehensive reassessment of regulatory frameworks, financial practices, and market dynamics, are seen as imperative for fostering long-term stability. These analysts posit that a recalibration of the credit and deposit dynamics, coupled with strategic reforms, could not only mitigate the current crisis but also fortify the financial system against future vulnerabilities. From their perspective, tackling the liquidity challenge necessitates a broader vision that goes beyond reactive measures and delves into the heart of systemic imbalances. This stance fosters a crucial conversation about the intersection of short-term crisis management and the imperative for sustained economic resilience.res. 

5. Public Perception:

As the ripple effects of the liquidity crisis permeate through the economic landscape, the general public becomes a significant stakeholder in the discourse, experiencing the tangible impacts of rising interest rates and looming economic instability. The prevailing sentiment among the public is one of concern, as individuals grapple with the potential repercussions on their personal finances and the broader economic well-being. This collective unease prompts a growing demand for transparency and effective communication from both commercial banks and the central bank, as the public seeks assurance and clarity amidst the prevailing uncertainty.

From the public’s viewpoint, the impact of rising interest rates directly translates into increased borrowing costs, affecting mortgages, loans, and other financial commitments. This tangible strain on personal finances amplifies concerns about the overall health of the financial system. The need for transparent communication from financial institutions and regulatory bodies becomes paramount, as the public seeks to understand the intricacies of the crisis, the measures being taken to address it, and the potential long-term implications. This call for transparency is not just a quest for information but also a plea for reassurance, as the public yearns for a clearer understanding of the steps being taken to safeguard their financial well-being and the stability of the broader economic environment.


In the unfolding narrative of the current banking landscape, characterized by a precipitous surge in borrowing, the gravity of the liquidity crisis confronting commercial banks looms large. The recent historical highs in borrowing, coupled with the intricate challenges stemming from the government’s financial strategies and the central bank’s policies, contribute to a complex and multifaceted scenario. As commercial banks navigate these uncharted waters, it becomes increasingly evident that finding a sustainable solution to the liquidity crisis is not only urgent but paramount for preserving the stability of the broader financial sector.

The diverse perspectives offered by stakeholders, from the central bank’s intervention and commercial banks’ challenges to the government’s fiscal choices and the insights of economic analysts, underscore the multifaceted nature of the crisis. These perspectives collectively emphasize the imperative for a collaborative and comprehensive approach to address the root causes rather than merely treating the symptoms. The significance of structural reforms, transparent communication, and strategic policy interventions becomes increasingly apparent as the financial ecosystem grapples with both immediate challenges and the imperative for long-term resilience. As the financial community and the general public look toward solutions, the synthesis of these perspectives points towards the need for a collective effort to restore confidence in the financial system and pave the way for a robust and sustainable economic future.

Ashraful Islam
Ashraful Islam
Ashraful Islam Mehedi, an accomplished author at Homeland News, holds an MSc in Food and Nutrition, infusing his articles with a unique blend of academic expertise and captivating storytelling. Specializing in topics ranging from nutritional science to culinary exploration, Mehedi's commitment to promoting a healthy lifestyle shines through. His writings not only unravel the latest in nutritional research but also offer practical advice for readers seeking to improve their dietary habits. Beyond the confines of conventional nutrition discourse, Mehedi explores diverse subjects, advocating for sustainable eating practices and decoding the mysteries of superfoods. With a focus on informed decision-making, he inspires Homeland News readers to embrace a holistic approach to food, fostering a community dedicated to wellness and vitality.


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