Lately, I have been receiving calls from friends and family asking which banks are safe or if they should withdraw their deposits from a particular bank. There were reportedly some bank branches, which couldn't encash small cheques from their clients and even clearing cheques were returned by a few banks for a shortage of funds.

The situation has worsened with Bangladesh Bank Governor Ahsan H Mansur listing 10 commercial banks as bankrupt. Of course, depositors even with some good banks are panicked, apprehending a dent in the overall banking sector. Newspapers have reported of huge cash being held in the family vaults and beneath the pillow i.e. outside banking. An adviser to the interim government was also heard to be in problems with their very large government deposits being stuck with much scandalised Padma bank.

The extent of scur left on the banking sector during the past regime is truly shocking. Despite frequent media coverage of irregularities, civil society's voice raised, and more transparency emerging after the mass uprising that brought down the regime, the true scale of corruption in the banking sector during the previous regime seems unfathomable. This just shows how daunting the challenge will be for the interim government as it sets its sights on reforms, restructuring and recovery.

The new administration has already taken some positive steps. The decision to form a taskforce to undertake reforms is a move in the right direction, though we are yet to see much visibility about their laundry lists. According to media reports, the Bangladesh Bank has also decided to rescue struggling banks, including some Shariah-based banks formerly controlled by a particular group, by injecting liquidity or merging a few.

The old regime had also promised similar objectives. However, instead of working towards that, it gave preferential treatment to corrupt, politically linked bank owners and stakeholders, which further compromised the health of these banks and put depositors' funds at risk.

Though Mansur in his past incarnation was heard to be not subscribing to the idea of providing liquidity to ailing banks (it usually happens to many while you are on other side of the table), the present authorities are heard to be supporting these banks for three main reasons: to safeguard the country's economy, protect depositors, and facilitate business continuity.

We strongly support these measures as these are the real issues that should drive all reform decisions. Though many of the banks were mired in corruption, their bankruptcy would cause significant harm to both depositors and the economy. The central bank is therefore obligated to try the "rescue path". But it must do so in the right way and for the right reasons.

However, the central bank has now decided to avoid providing liquidity support by printing money, as was done before, and instead allow lenders to access support through inter-bank money supply, with it acting as the guarantor. Additionally, the central bank must ensure that these banks take every possible measure to recover default loans in order to lessen their liquidity crisis.

Reportedly, out of the Tk 70,000 crore that went outside the banking channel, Tk 30,000 crore has been recovered. This, along with the government's decision to insure up to Tk 2 lakh for each depositor, should help restore some confidence in the sector. While we appreciate the overall direction of the banking sector under the interim government, coordinated efforts involving various agencies are essential to recover or bring back the remaining funds into the coffer. Besides, we should be expecting closure of the few investigations into large wrong doings in the banking sector.

The author is chairman of Financial Excellence Ltd