BFIs should invest more in productive sectors so that their capital investment can be recovered and more employment can be generated

The Banks and Financial Institutions (BFIs) have started offering higher interest rates on short-term fixed deposits to maintain CDC (credit to core capital cum deposit) ratio. The Nepal Rastra Bank (NRB) has set the CDC ratio at 80:20, which the BFIs say is not enough to tackle the liquidity crunch. The BFIs and Confederation of Nepalese Industries have asked the government to increase the ratio up to 85:15 so that they can lend money in the market without deposits. In this backdrop, some “A-class” banks have offered interest rates up to 12 per cent for a short-term fixed deposit. However, the average lending rate at present is in between 10 to 11 per cent. It means that the BFIs have been accepting high-cost deposit to maintain CDC. The CDC ratio is calculated by dividing loans disbursed in local currency by the sum of local currency deposit and core capital, which includes equity capital and a portion of net income retained by BFIs. The latest financial statements of BFIs show that most of them are in a tight position with their CDC ratio less than required. Interestingly, the average daily transaction at Nepal Stock Exchange which used to stand at Rs. 1.38 billion has now gone down to Rs. 711.23 million as the BFIs have offered attractive interest rates.

Finance experts believe that the liquidity crunch started to occur in BFIs as they lent loans on unproductive sectors or “risky areas” such as hire purchase, home loan, real estate, overdraft, loan against collateral of stock and auto-loan to earn higher profits within a short period of time. Financial statements of the BFIs show that their credit expansion has increased to Rs. 204 billion as against the deposit growth of Rs. 155 billion. The NRB has been warning the BFIs against lending excessive money on unproductive sectors that are highly risky to recover. The slowdown of remittance inflow and the government’s weak spending of the capital expenditure are also blamed for the liquidity crisis in BFIs. On the other hand, the depositors have also stopped depositing in BFIs fearing that they might lose their earnings.

In order to overcome the liquidity crunch, the BFIs and CNI have urged the NRB to reduce cash reserve ratio (CCR) by one per cent from the current six, five and four per cent for commercial and development banks and financial companies, respectively. The bankers have said if the CDC ratio is revised and increased from 80 to 85 percent the banks will have room to expand credit without seeking more deposits. It may be recalled that the NRB had to intervene in the BFIs about five years ago when they went through the liquidity crunch due to their lending mostly in the consumptive or unproductive sectors. It is high time that the NRB issued directives to the BFIs to slash down their credits in unproductive sectors. The government, which is the biggest capital investor, is also to blame for the liquidity crisis as its capital expenditure has remained just at 10 per cent as of the first quadrimester. BFIs should also be prepared to invest their large chunk of capital in productive sectors so that their capital investment can be recovered and more employment can be generated within the country.

Birthing services

Many women, mostly in the remote parts of the country, are denied parturition services. As such, birthing services to local women at home are being provided in districts like Bajura, Humla, Mugu, Sindhupalchowk, Kavre and Gorkha. Besides providing birthing services under the supervision of experts in the remote areas the health workers also carry out visits, and the patients are provided with medicine. They also conduct regular follow-ups. It would be better to have parturition services at as many health posts as possible as such services are not available in many of them.

Sadly this is not the case and due to the lack of birthing services many women and newborns risk losing their lives. Moreover, many women reside far away from the health posts, and it often takes hours or even days to reach the health centres walking. Thus, providing birthing services at home could  benefit  many women who are unable to reach the health centres in time. Such services should be extended to more districts whose health posts lack parturition services. In the meantime, the birthing services should be made easily available and accessible as far possible.