Malgovernance and lack of prudential management mostly caused liquidity drop in the banking sector by Tk 665.81 billion to Tk 1.37 trillion in seven months of this fiscal, said the Centre for Policy Dialogue (CPD).
While presenting budget recommendations for fiscal year 2023-24, it said the crisis deepened as Islami banks as a group could not meet the total minimum liquidity requirement by the end of January 2023.
"We've been arguing for setting up Independent Banking Commission for improving health of the banking sector," said CDP executive director Fahmida Khatun while addressing a press conference.
The leading local policy think-tank hosted the event at Dhaka office to present its budget recommendations.
At the same time, Ms Fahmida said, with declining purchasing power and lowered propensity to save, currency in circulation outside banks increased by 24.1 per cent by the end of January 2023.
"We witness uncertainty and anomaly in the banking sector," she added.
Ms Fahmida said the issue of establishing good governance in the banking sector and pursuing the much-needed reforms to this end is long overdue.
The CPD in its proposal said, "It has now emerged as urgency that the central bank intervenes to change the current system of administered interest rates and embraces a market-based interest rate regime."
The central bank has committed to the International Monetary Fund (IMF) to adopt an interest rate corridor system with a view to enhancing monetary operations by the end of July 2023.
Indeed, the CPD has been arguing for some time that the central bank should opt for a market-determined interest rate regime in view of rising inflation and the tight liquidity situation.
Recently, Moody's, one of the most reputed global rating agencies, downgraded its outlook for the sector in Bangladesh from "stable" to "negative".
The CPD urged the government to implement commitments given to the IMF to improve health of the sector.
"These reforms should be carried out in an unbiased professional manner ignoring pressure from vested groups and keeping the best interest of the banking sector in mind," it said.
The think-tank called for taking urgent steps to expedite legal steps against financial misappropriations in the banking sector and the wilful defaulters.
It said the bank commission would be mandated to propose a set of actions that would then be implemented in a time-bound manner in these issues. The CPD said the cash-strapped scheduled banks have recently been unable to provide loans.
"Continued borrowing from the central bank will not be advisable as it may lead to added inflationary pressure," it added.