‘Credit crunch’ short-term issue: Governor

Kathmandu, February 6

Nepal Rastra Bank Governor Chiranjibi Nepal today assured the Public Accounts Committee of the Legislature-Parliament that the current crisis of loanable funds in the banking system is a short-term phenomenon and will be resolved in the near future.

“The current crisis of loanable funds being faced by the banks has occurred as they failed to plan their loan disbursement on the basis of deposit collection,” said the governor. “Now they do not have sufficient funds to disburse loans as they have already utilised their optimum capacity to float loans.”

He further said that the central bank has urged the banks to attract more deposits because most banks are on the verge of exceeding credit to core capital cum deposit (CCD) ratio of 80 per cent. “Banks will also be able to collect more deposit as the government’s capital expenditure gathers pace.”

Stating that since the banks seem to have taken undue advantage of NRB’s quarterly monitoring system, Governor Nepal informed that the central bank is now preparing to introduce a new system whereby the banks will be required to submit their loan portfolio every month.

Governor Nepal clarified to the lawmakers that the current problem is not due to lack of cash in the banking system.

There was liquid fund worth Rs 51 billion as of February 5. On other hand, NRB has various instruments — repo, outright purchase sale, NRB bond, standing liquidity facility, refinancing facility and others — through which the NRB can float funds worth Rs 531 billion to the market, said the governor. “We are also mulling over reducing cash reserve ratio requirement during the mid-term review of monetary policy 2016-17 to ease the credit crunch.”