KATHMANDU, MARCH 1
Even as commercial banks have raised the interest rates on deposits, the deposit collection continues to remain tepid.
As per the latest data provided by the Nepal Bankers' Association (NBA) - the umbrella organisation of the commercial banks - the total deposits of 27 commercial banks stood at Rs 4.313 trillion on February 25 from Rs 4.311 trillion recorded two weeks earlier, that is, February 11.
"The deposit collection goes up along with the hike in the interest rates only when people are holding on to their money at home rather than keeping it in the bank," explained NBA CEO Anil Sharma, adding that analysis of the scenario in the current fiscal year reveals the root cause of the liquidity crunch in the banking sector is not related the interest rates.
"The massive surge in imports coupled with drop in remittance inflow is the major factor for the existing liquidity crisis," he said.
Despite the tight liquidity situation, the credit growth of the banks over the review period stood at Rs 10 billion. The total loan disbursement had reached Rs 4.165 trillion on February 25 against Rs 4.155 trillion till February 12.
However the NBA CEO Sharma said the credit disbursement of Rs 10 billion is actually nominal when divided among the 27 commercial banks.
In line with the central bank's instructions, commercial banks, which had been offering 10.05 per cent interest per annum on fixed deposit prior to February 1, are currently offering 11.03 per cent. Likewise, the interest rate on savings accounts has gone up to 6.03 per cent.
While the Nepal Rastra Bank has directed the commercial banks to limit their credit-deposit (CD) ratio within 90 per cent by mid-July 2022, according to NRB's Deputy Spokesperson Narayan Prasad Pokhrel, the CD ratio of 20 banks has surpassed the limit of 90 per cent, and the liquidity coverage ratio (LCR) of 23 commercial banks stands at below 25 per cent.
The CD ratio reveals how much of the money banks have raised in the form of deposits has been deployed as loans, and the LCR refers to the proportion of highly liquid assets held by financial institutions, to ensure their ongoing ability to meet short-term obligations.
"The credit investment towards the private sector over the first six month of the current fiscal year increased by 28 per cent against NRB's projection of 19 per cent in the Monetary Policy of 2021-22, which reflects the liquidity crisis in the banking sectors.
Thus, the recent mid-term review of the monetary policy has primarily focused on stabilising the external factors by managing the domestic demand."
In order to ease the liquidity crunch, the NRB has injected additional Rs 4,732 billion in country's financial market over the seven-and-a-half months.
"The central bank is ready to inject or mop up funds through various monetary instruments as the situation evolves," Pokhrel assured.
A version of this article appears in the print on March 2, 2022, of The Himalayan Times.
