POKHARA: The Nepal Rastra Bank on Friday said an unhealthy competition between banks and government failure to spend state coffers have led to liquidity crunch in the country.

Nara Bahadur Thapa, Research Department acting head of the Central Bank said the bank is aware of issues pertaining to liquidity crunch in the nation. He said so while interacting with stakeholders in Bank Business Model programme orgainsed by the NRB in the Lake City on Friday.

During this fiscal year development banks have invested Rs 1.6 billion in comparison to deposit collected of Rs 1.60 billion. Thapa urged banks to invest as per their capacity, otherwise such problems would arise repetitively in the future.

He also pointed towards some commercial banks embroiled in creating such situations and urged NRB to remain alert of such activities.

"One commercial bank, during the five-month period, collected deposits of Rs 280 million and invested Rs 32 billion in the market, it had no choice other than borrowing from other banks, such transfer activity is creating problem," Thapa shared.

He also warned banks not to indulge in an unhealthy competition by eluding customers with high interest rates in their deposit amount in short period.

Thapa clarified that NRB does not like to see commercial banks running in losses, urging the banks to work for the well-being of the national economy rather than focusing on certain profitable sections.

He stressed the banks to focus on quality products rather than just increasing the loan portfolio. Loans on vehicles, real estate not being good enough for national economy, Thapa urged them to invest in productive sectors.

"Meanwhile, Rs 340 billion deposit has remained stagnated in state coffer. NRB has been urging the government for mobilisation of its capital in the market. Despite frequent requests from NRB, the government has failed to implement it," Thapa lamented.

He was of the opinion that if the government succeeded in spending budget allocated to local levels, it would help to ease liquidity crunch.

Commercial banks have established their branches in 342 local levels, however, 411 local levels are still deprived of banking services in the nation, according to Thapa.

First government should reach the villages then only banks can reach there, Thapa sarcastically urged the government to establish infrastructure like road, electricity, telephone, and internet so that banks can open their branches in far flung areas in the country.

Thapa said NRB is preparing to introduce Universal Banking Business Model to incorporate capital market, remittance, insurance. Earlier, banks were confined in collecting deposits and lending loan to customers.

Bishwomohan Adhikari, CEO of Om Development Bank urged the government to deposit its revenue in other financial institutions. It would help to ease liquidity crunch as government deposits its revenue in NRB only.

Speaking at the same programme, Prithvi Narayan Campus Chief Yadav Sharma Gaidel said it is high time that city-based banks reach rural areas to keep the economy moving.

Similarly, Professor Lekhnath Bhattarai said that it is high time the nation adopt the Universal Banking Model as traditional banking system has failed in Nepal.

Earlier, in a report released by the Financial Area Development Strategy of NRB, it has given priority to the Universal Banking Model.