Nepal | June 02, 2020

NRB clarifies on inter-bank deposits in CCD ratio calculation

Himalayan News Service
Share Now:
Nepal Rastra Bank

Nepal Rastra Bank. Photo: THT/ File

Kathmandu, August 24

Nepal Rastra Bank (NRB) — the central regulatory and monetary authority— has clarified that banks and financial institutions cannot factor the inter-bank deposits in credit to core capital cum deposit (CCD) ratio only in cases where the inter-bank borrowing is again placed as deposit in the same financial institution.

The central bank had issued clarification as the commercial banks have lowered the interest rate on deposit of development banks and finance companies to almost zero following the unified directives issued by NRB last week, which prevented banks and financial institutions to factor interbank deposit in CCD calculation. A large chunk of deposit of development bank and finance companies was withdrawn following NRB’s rule on CCD calculation.

As per NRB Spokesperson Narayan Prasad Paudel, the central bank has included the provision in unified directives with an objective to prevent banks and financial institutions (BFIs) from accepting the funds as deposit from the financial institutions with whom it already has inter-bank transactions.

BFIs can lend only 80 per cent of sum of core capital and deposit. Of the remaining 20 per cent, they maintain liquid cash and invest in government treasuries. However, due to high operational costs, development banks and finance firms cannot compete in terms of rates while bidding for government bonds. Due to this, class ‘B’ and ‘C’ financial institutions vie to maximise their idle funds through interest income in deposits.

Commercial banks have lowered interest on deposit considering such deposits as inter-bank deposit. But now NRB has clarified that banks can factor inter-bank deposit in CCD calculation except when the inter-bank borrowing is again placed as deposit in the same financial institution, as per the circular issued today.

This clarification has provided a major relief for commercial banks as most of them are close to reaching the permissible CCD ratio.

Currently, BFIs have inter-bank deposit of over Rs 70 billion and a large chunk of this deposit is parked at commercial banks. The inter-bank deposits have helped commercial banks to be in a comfortable position in terms of CCD.

Earlier, the central bank had relaxed the CCD calculation provision, with the BFIs allowed to deduct 50 per cent of the loan floated in productive sector in CCD calculation through half yearly review of monetary policy of last year. The central bank is going to remove the relaxation by mid-October this year and the banks are under pressure to maintain the CCD ratio at permissible 80 per cent.

The central bank’s clarification on inter-bank deposit has also minimised the chances of further rise in interest rates as the average CCD of commercial banks is around 77 per cent and the banks have loanable funds of around Rs 70 billion, according to bankers.

Nevertheless, a few commercial banks have crossed the permissible CCD ratio due to their rapid loan expansion against slow deposit mobilisation in last fiscal and they had offered relatively high interest rates on inter-bank deposits.


A version of this article appears in print on August 25, 2017 of The Himalayan Times.


Follow The Himalayan Times on Twitter and Facebook

Recommended Stories:

More from The Himalayan Times:

People opting to sanitise homes, office spaces as COVID-19 infections keep rising everyday 

Kathmandu Handsanitisers, gloves and masks were our first shield of protection against the spread of coronavirus. And now people have started sanitising their homes and offices as a precautionary measure as infections keep increasing nationwide.   Muna Thapa had never sanitised her Read More...

Dailekh reels under scarcity of tests as people return to district in thousands

KATHMANDU: As thousands of people are returning home to Dailekh from India, the district faces a shortage of PCR tests, increasing the risk of widespread transmission of Covid-19 among the locals. Returnees from India, who are placed in various quarantine facilities in Dailekh district, are at a Read More...

25 people discharged from Bhim Hospital in Bhairahawa

BUTWAL: Twenty-five people were sent home from Bhim hospital in Bhairahawa after recovering from Covid-19, on Monday. Among those discharged are 22 men and three women, including a 4-year-old and a 10-year-old girl. Of the 25, 10 are from Gaidahawa Rural Municipality -- including three women f Read More...

Three more COVID-19 positive cases identified in Nawalpur

NAWALPUR: As many as three new cases of coronavirus infection have been reported in Nawalpur district today. Of the newly infected, two persons aged 22 and 36 are from Kawasoti-1 and 12 respectively, while the third person, aged 14, is from Binayi Tribeni Rural Municipality-3. They had recently r Read More...

UN forced to cut aid to Yemen, even as virus increases need

CAIRO: Aid organizations are making an urgent plea for funding to shore up their operations in war-torn Yemen, saying they have already been forced to stop some of their work even as the coronavirus rips through the country. Some 75% of UN programs in Yemen have had to shut their doors or reduce Read More...

NEA

Electricity demand up as factories resume operation

KATHMANDU, MAY 31 After the government decided to allow the operation of 44 types of industries from April 10, electricity consumption has been gradually returning to normal. According to Nepal Electricity Authority (NEA), the normal peak hour demand, which was around 1,200 megawatts before th Read More...

NEA to provide free electricity to 800,000 houses

KATHMANDU, MAY 31 As per provisions included in the recently announced budget for next fiscal year 2020-21, approximately 800,000 domestic consumers of Nepal Electricity Authority will be able to utilise free electricity service. While presenting the budget for the next fiscal at the Federal P Read More...

India asks internet service providers to block WeTransfer

NEW DELHI: India has ordered its internet service providers (ISPs) to block file-sharing website WeTransfer at a time when hundreds of millions of people are working from home because of a nationwide lockdown to stop the novel coronavirus. The order, dated May 18, from India's Department of T Read More...