The recently held local level elections dented the deposit collection in commercial banks of the country in the 10th month (mid-April to mid-May) of the current fiscal year.

As per the latest data provided by the Nepal Bankers' Association (NBA) - the umbrella organisation of commercial banks in the country - the total deposits of 27 commercial banks plunged sharply by Rs 19 billion between April 14 and May 13 to Rs 4.370 trillion after witnessing gradual recovery in the earlier month.

At the end of the ninth month of the current fiscal year, the total deposit of commercial banks had reached Rs 4.389 trillion.

The country's financial market is currently under pressure to manage liquidity, which has been blamed largely on the NRB implementing the rule of credit-deposit (CD) ratio. Through the Monetary Policy, NRB had replaced the provision of credit to core-capital plus deposit (CCD) ratio with a maximum limit of 85 per cent by CD ratio with a ceiling at 90 per cent.

The target has to be achieved by the end of this fiscal, or mid-July.

Moreover, the banking system has been facing a deposit crunch due to low government expenditure, slow growth of exports and slack-ness in remittance growth. As a result, banks have been facing a crisis of loanable funds to expand their business.

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This is evident through the NBA data which show credit flow of commercial banks over the review period fell by Rs six billion.

The total loan disbursement had dropped to Rs 4.191 trillion in the review period against Rs 4.197 trillion till April 14.

In line with the central bank's instructions to attract deposits, 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.

However, the measures seem to have largely failed to attract depositors.

A version of this article appears in the print on May 20, 2022, of The Himalayan Times.