Nepal | August 03, 2020

NRB hints at possible financial instability


Himalayan News Service
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Kathmandu, May 23

A lethal combination of higher credit disbursement and low deposit collection in the banking sector may hit the country’s financial stability in the future, Nepal Rastra Bank (NRB) said today through the third quarter review of the Monetary Policy for fiscal year 2018-19.

“Expansion of credit at a higher rate as compared to the growth rate in deposit collection of banks and financial institutions (BFIs) is creating pressure on investable resources. This scenario has continued the risk of financial instability in the economy,” reads the NRB report, adding that continuous pressure on the balance of payments (BoP) and current account position of the country too might affect financial stability.

While the current account registered a deficit of Rs 204.43 billion in the first nine months of 2018-19, BoP remained at a deficit of Rs 64.68 billion in the review period.

However, the central bank has failed to give a concrete solution to ensure financial stability in future in the review report of the Monetary Policy.

“The need is to focus on developing secured and easy disbursement mechanism, financial inclusion and effective distribution of financial resources,” said NRB.

However, the central bank has said it will expand financial policies as required and increase credit flow in the productive sector in a bid to ensure financial stability.

Meanwhile, it has also tightened call deposits being collected by banks. Issuing a circular today, NRB has barred class ‘A’ commercial banks from collecting call deposits that amount to more than 10 per cent of the total deposit. Similarly, the share of call deposits collected by class ‘B’ and ‘C’ financial institutions should not exceed 15 per cent of their total deposits, as per NRB.

Meanwhile, BFIs with already high rate of call deposits have been given up to mid-July, 2020 to bring down the share of call deposits to the aforementioned level.

A version of this article appears in print on May 24, 2019 of The Himalayan Times.

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