The government's net bank borrowing crossed Tk 500 billion until middle of this month, compelled by the need for meeting budget deficit, officials said.
Falling trend in sales of national savings certificates coupled with a shortfall in revenue collection has led to higher debt from the banking sector during the period, they noted.
Meanwhile, the government's combined net bank borrowing reached Tk 508.42 billion at the end of January 15 of the current fiscal year, according to a Bangladesh Bank (BB)'s confidential report.
Of the total, the government borrowed Tk 434.60 billion from the banks using treasury bills (T-bills) and bonds, and the remaining Tk 73.81 billion has been sourced from the central bank.
Senior bankers, however, said liquidity pressure on the market is already in evidence after higher bank borrowing by the government.
The amount of overall transaction in the inter-bank call money market came to Tk 26.21 billion on Wednesday from Tk 57.70 billion a week before. The amount was Tk 73.54 billion on January 14.
Bankers feared liquidity pressure on the market would intensify in the coming months, particularly from the final quarter of this fiscal when the pace of implementation of annual development programme, or ADP), gets expedited.
Talking to the FE, Syed Mahbubur Rahman, managing director and chief executive officer (CEO) of Mutual Trust Bank Limited, said the government's bank borrowing normally picks up in the final quarter of each fiscal year because of increased execution of ADP.
Besides, the demand for credit may go up from April since the regulator instructed the banks to implement single-digit interest rates on both lending and deposits, he explained.
Against this backdrop, Mr. Rahman, a former chairman of the Association of Bankers, Bangladesh (ABB), did not rule out the possibility of a crowding-out effect on the market if the government's high bank borrowing continues.
A senior central banker dismissed such an apprehension, though.
He insisted there will be no crowding-out effects on the private sector since the government and private expenditures are substitutive not complementary.
"We'll inject liquidity into the market using our monetary instruments like repo to keep the market stable, if necessary," said the BB official, an economist by training.
Meanwhile, the government is set to borrow nearly Tk 50 billion from the country's banking system for the month of January on the same ground.
The government may take up to Tk 210 billion as gross borrowing from the banking system in January through T-bills and bonds, according to the government's auction calendar, issued by the central bank recently.
The auction calendar means the schedule and the amount of T-bills and bonds are to be issued through auction for raising funds from the market to partially meet the government budget deficit.
The government's net bank borrowing may reach Tk 49.50 billion in the single month, after deducting Tk 160.50 billion against the government securities that would mature during the month, according to the BB officials. "The government faced deficit balance in its account recently, mainly due to lower revenue collection along with the continued drop in sales of national savings certificates," a senior official familiar with the government debt-management activities told the FE earlier.
The government has already used ways and means advances (WMAs) facility from the central bank to meet its account deficit, the BB's report showed.
Under the existing rules, the government is empowered to borrow up to a maximum Tk 60 billion from the central bank under such a facility without any securities.
After availing the facility, the government may use overdraft (OD) drawing arrangement as well from the central bank, if its negative account balance crosses the Tk 60 billion mark, according to the official.
The government appears set to borrow Tk 473.64 billion from the country's banking system to partially meet its budget deficit for the FY '20. It was Tk 308.95 billion in FY '19.