Study committee yet to submit report even as credit crunch deepens

Kathmandu, January 9

A study committee formed by the Ministry of Finance (MoF) last week to submit a report on how the government could address the challenge of credit crunch in the banking sector has yet to submit its report even though the deadline has already been crossed.

The committee was supposed to submit the report to the finance minister early this week but it has been taking more time even as the problem is further deepening. Banks have already disbursed loans up to the permissible level and average credit to core capital plus deposit (CCD) ratio is almost 80 per cent.

According to Nepal Bankers’ Association, banks are sitting on a very thin cushion, which means that if Rs 30 billion to Rs 35 billion is withdrawn from the banking channel, the CCD level of all the banks, excluding the government-owned Rastriya Banijya Bank, will overshoot the permissible 80 per cent limit.

The central bank does not allow banks to cross the threshold of 80 per cent of core capital cum deposit.

However, the committee citing the ease in the market had not submitted the report while the deadline (mid-January) for the first tranche of income tax submission is approaching and the bankers are apprehensive about the withdrawal of a large chunk of funds for submission of income tax.

In the second half of the fiscal, most of the banks will breach the permissible CCD and might face action from Nepal Rastra Bank (NRB).

Bhuvan Kumar Dahal, CEO of Sanima Bank, has said that around Rs 40 billion to Rs 45 billion could be withdrawn from the banking system whereas the banks will not have

any cushion even with the withdrawal of only Rs 35 billion.

Banks were seeking refinancing facility from NRB as they can obtain 25 per cent of core capital as refinancing. However, the central bank has not given sufficient refinancing due to lack of funds with them. The MoF has assured banks about providing deposits of public enterprises (PEs) deposited at the central bank through which banks could maintain CCD and the PEs could maximise funds by earning interest on it.

MoF has said that there is fund worth around Rs 15 billion of PEs deposited at the central bank. However, nothing has materialised yet, as the committee has not submitted its report. The committee comprises Ram Sharan Pudasaini, joint secretary of MoF, Executive Directors of NRB Nara Bahadur Thapa and Narayan Paudel, and Deputy Financial Comptroller General Yadunath Bhattarai from the Financial Comptroller General Office.