TO every action there is an equal and opposite reaction. And whether one agrees or not with it, one may mention that every regressive reaction is followed by sloth and inevitable degeneration. And that is what is feared to be the consequence of a recent Bangladesh Bank (BB) circular. Because of a BB directive in that particular circular, the bank-client relationships may suffer from regression in various ways.
The circular in question was originally issued on December 21, '05, which required that from January, '06, the commercial banks must report to the BB about every transaction in cash amounting to Taka 0.5 million or more. Following indignation by banks, the circular was slightly modified on December 29, '05 and the effective date was shifted to March '06. However, exception was made for public institutions and that banks have to report such transactions in case of deposits only. Explaining the purpose of the circular, the Bangladesh Bank elaborated that it was aimed at safeguarding the banking channels from illicit transactions and currency smuggling. It was also clarified that cash transaction report and doubtful transaction report are not necessarily the same.
Before we embark on considering the reservation and resentment from the commercial banks, let us assess the aims and objectives of the Bangladesh Bank (BB) behind its new initiative. The preamble of the circular points at a great purpose. But if only a little effort like that could safeguard the banking channels from money transfer or laundering, than it would be the easiest of all to check this notoriety globally. Can such a step really ensure an effective defence to the banking system against the vice of currency smuggling?
First of all, that BB circular has brought every commercial bank and all their branches unfairly under a cloud of doubts and suspicion, which should not have been the case. All banks must not be weighed on the same scale. And so, the requirement of reporting transaction of Taka 0.5 million should not have been made universal in the first place. Rather, the requirement of reporting such transactions should have been applicable ostensibly in doubtful cases only, which could spare the alert and responsible banks from avoidable hassles.
The second aspect is whether sending transaction details of Taka 0.5 million or more to the Bangladesh Bank is enough to stop questionable money transfer through the banking channels. It is not at all comprehensible how such details could help deter the wily objectives of currency smuggling! A fraudulent bank can involve itself in such bad practices even after abiding by the directive. What tools does the Bangladesh Bank have to check falsehood?
It is known that the central bank does have the authority over the banks and financial institutions. It can supervise their activities, ask for explanations, issue directives and take action against or reprimand them if necessary. But it cannot subject them to something unfair to their business disadvantage. Asking for disclosures that are likely to take toll on their business and harassing their clients may not be very conducive for the banking sector. The issue under study may even shake the genuine activities of the market. Banking which requires dealing with clients, is not like transactions in the commodity market. It is a mechanism built on trust, a trade in trust and of course requires a mindset of trust. A small nail wrongly driven may cause a paralytic effect. The directive in question is contrary to the banking mechanism, to the trade and the operational environment of the whole banking system. It is particularly detrimental to the bank-client relationship and may lead to instability in the banking sector.
Let us examine how useful will be the Taka 0.5 million lower limit for the reporting. An ordinary business client may require withdrawal (or deposit) of Taka 0.5 million once or twice in a month. Now every time he will be subjected to unnecessary questions from the bank's counters. When he will be told that it is necessary for reporting to the BB, that may make him shaky. He may then resort to multiple cheques at different dates to avoid being asked. And this will vitiate his mental frame.
Considering all these, the commercial banks have already expressed resentment against the requirement for such reporting. The disclosure requirement comes into effect from March 06. Banks have argued that Taka 0.5 million lower limit for deposit or withdrawal does not involve a big amount and that such amounts are frequently transacted by banks. They have suggested for raising the limit to at least Taka 1.0 million. News of such reporting has already raised concerns in the business circle. But in a high-handed regulatory situation who cares about that!
There indeed are loopholes in the banking system. Money laundering does take place. The conduits of hundi traders flush away crores of Takas to countries in our closest neighbourhood through the same banking channel every month. Without swooping on those parties and practices, asking banks to report about each and every transaction of a small limit of Taka 0.5 million is very impractical and unwise. The guardian of the money market will do well to look at the practical utility and effectiveness of its newer control tools rather than sporting in an exercise that reminds one about being 'penny-wise and pound-foolish'.
The writer is Company Secretary at SABINCO, a joint venture financial institution