DHAKA (Reuters) - Bangladesh's central bank has started monitoring all cash transaction of more than 500,000 taka ($7,246) per day through banks in a drive to detect the illegal transfer and use of funds, bank officials said on Sunday.

All banks, financial and non-banking financial institutions came under the monitoring to help identify money launderers and find out links to terror financing, the officials said.

"The decision was taken following detection of huge tax evasion and incidents of corruption in recent times," a senior official of the Bangladesh Bank (central bank) said.

Banks, insurance and leasing companies, courier and postal services, non-government organisations, microfinance institutions and cooperatives came under the Bangladesh Bank monitoring, he added.

A software package provided by the U.S. government has been installed at the anti-money laundering department of the Bangladesh Bank, the official said.

Banks and other institutions have also been asked to provide the central bank with their latest statements of all transactions of more than 500,000 taka made in a day.

"It is the right decision. The honest clients should not be panicked as the central bank will only to detect foul transactions, to see whether the fund is being used for any wrong doing," said S. M. Aminur Rahman, Managing Director of the Sonali Bank, the largest state-run bank.

"The confidence of large and corporate clients are already shaken as revenue authorities asked us (banks) to provide transaction information of our clients," an executive of a commercial bank said.

"Enforcement of further monitoring by the central bank would give a big blow to the banking business," said the executive who asked not to be named.

Bangladesh's army-backed interim government has asked for checks on possible illegal use or transfer of funds as part of a drive against corruption, especially by politicians and businessmen.

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