After seeing a surge in deposits in the commercial banks and financial institutions (BFIs) towards the closing month of last fiscal year, they are once again facing a scarcity of fresh deposits in the current fiscal. As a result, although there is a huge demand for loans, the BFIs are unable to dole them out due to the liquidity crunch. According to the latest data furnished by the Nepal Bankers' Association (NBA) – the umbrella organisation of 27 commercial banks – the total deposits of commercial banks plunged by a whopping Rs 95 billion between July 16 and August 5, from Rs 4.541 to Rs 4.446 trillion. The growth in weekon-week deposits has also decreased since the fiscal year began – by Rs 63 billion in the week ending July 22, by Rs 28 billion in the week ending July 29 and by Rs 4 billion in the week ending August 5. The plunge in deposits has reflected on lendings, which show that it contracted by Rs 10 billion in the week ending July 22 and by Rs 1 billion in the week ending July 29, although total lending increased by Rs 2 billion in the week ending August 5.

The liquidity crunch that the banks keep facing from time to time does not augur well for the country's economy. Since the banks have no option other than to tighten the disbursement of loanable funds, it hampers development projects in particular. This is already being seen in completing hydropower projects, for instance, where contractors are demanding payment for the civil works accomplished, but the promoters are unable to pay them because the banks cannot lend them money despite the assurances they had received.

In view of the financial difficulties facing the country, the Monetary Policy for the fiscal year 2022-23 has also focussed on controlling credit flow by lowering credit expansion to 12 per cent from 19 per cent in the last fiscal year. But this is not good at a time when the economy is trying to make a comeback after the COVID-19 pandemic.

Although the BFIs have raised the interest rate on deposits, they have failed to attract depositers as per their expectations. The sudden surge seen in bank deposits from mid-June to mid-July was largely due to money deposited by the government to pay the contractors for the development works that had been carried out during the first 11 months of the last fiscal. Nepal's liquidity problem has its roots in its over dependence on remittances and import-based economy. Most of the loans doled out by the banks have not been in the productive sectors. According to data, most of the loans have been issued to import consumer goods, which means all the money is flowing out of the country, leaving only a very negligible productive sector to replenish the decreasing funds.

While the pandemic was a big factor contributing to the liquidity crisis, as thousands of businesses have shut down, the government must act to resolve the problem once and for all. For now, the ban on import of luxury goods to stop the depletion of foreign exchange reserves must continue, which will add some liquidity in the market. But in the long term, we need sustainable macro-economic policies while indulging the private sector in export-oriented industries to prevent another liquidity crunch in the market.

Local efforts pay off

An endangered fish species, locally known as the Sahar, has started making a comeback in the Thuligad watershed area in Kailali and Doti districts, which is one of the tributaries of the Karnali River.

This endangered fish species could be saved thanks to the initiatives taken for its conservation by the local levels and other organisations involved in its conservation.

Conservationists say a large number of Sahar fish have been detected in recent times in the Thuligad River.

Before the local levels imposed a ban on illegal fishing of the Sahar, people would use handmade explosives, poison made from certain plants or even electricity to catch the expensive species, which is sold at Rs 1,800 per kilogram in the local markets. As many as 27 fish species are found in the Thuligad watershed area. The local levels in Kailali and Doti districts had imposed the ban on illegal fishing in the river some four years ago when the Sahar and other fish species were found to be declining as a result of overfishing. The local levels deserve praise for their efforts at conservation. The local levels can do even better if they decide to launch captive breeding of the endangered fish species.

A version of this article appears in the print on August 10, 2022 of The Himalayan Times.