" The sudden surge in deposits in the BFIs will not help them to disburse loans in productive sectors"
With the current fiscal coming to an end, the commercial banks and financial institutions (BFIs) have witnessed a surge in deposits between mid-June and the first week of July. As per the latest data provided by the Nepal Bankers' Association (NBA) - the umbrella organisation of 27 commercial banks - the total deposits of the commercial banks witnessed a gradual recovery, reaching Rs 4.949 trillion. The BFIs collected a total of Rs 94 billion during the month of mid-June till July 8. There was a sudden surge in deposits as the government released Rs 25 billion from its treasury on Saturday alone to pay the contractors and the inflow of remittances that had stagnated for many months. Deposit growth picked up significantly after June 17 – Rs 4 billion till June 24, Rs 34 billion in the first week of July and Rs 62 billion in the second week of July. At the end of the 11 month of the current fiscal, the total deposit of the BFIs stood at Rs 4.4 trillion. Most of the money deposited in the BFIs is government money, which was paid to the contractors for the development works that they carried out in the past 11 months.
The banking sector had been affected for a long due to low government expenditure, excessive loan disbursement in the unproductive sectors and slackness in remittance growth. The government has been able to spend only 50 per cent of the development budget in the current fiscal, which is the lowest compared to the previous fiscal years. This is a common problem the country has been witnessing for many years. The sudden surge in deposits in the BFIs will not help the financial institutions to disburse loans in the pro-disburse loans in the productive sectors and recover them in time. A steady flow of money from the government treasury for the development works can help circulate money round the year, creating job opportunities in the productive sectors. The large amounts of money deposited in the BFIs towards the end of the fiscal will be held up for a couple of months without being used in the productive sectors.
However, the bright sight of the current fiscal is the slight growth in remittances, which had slowed down since the beginning of the current fiscal. According to the Nepal Rastra Bank, the remittance inflow rose by 3.8 per cent to Rs 904.18 billion in the last 11 months, compared to a jump of 12.6 per cent in the same period of previous year. The growth in remittance will help sustain the economy to some extent, averting the liquidity crunch in the market. In order to sustain the national economy, the government and the central bank should introduce a strict policy to discourage investment in unproductive sectors, such as auto and housing loans. At the same time, the government should formulate a policy that encourages the people to enter the formal economy, which will help generate revenue through taxation. As most of the government works are carried out through contracts, the registered contractors, however, do not pay their labourers through the banking channels. As remittance plays a vital role in keeping the national economy afloat, the central bank should offer attractive packages to the migrant workers to encourage them to send money through the banking channels.
Crusher industries
The government the other day asked all local levels, through a circular, to act as per the June 29 Supreme Court order regarding the standard required for setting up crusher industries. The local levels would do well not to dillydally in implementing the order in both word and spirit. With the construction spree going on in both Nepal and neighbouring India, crusher industries are booming, with more than a thousand operating across the country, but very few following the standard. River materials, such as stones, pebbles and sand are extracted haphazardly, causing untold damage to the local environment.
On May 22, the government had made amendments to the 'Standard on Extraction, Sale and Management of Stones, Pebbles and Sand-2020' that reduced the distance from bridges, lakes, rivers, dense settlements, educational institutions, parks and places of archaeological importance for setting up crusher industries. This was nothing but policy level corruption, carried out at the behest of lobbyists. But the Supreme Court in June issued an interim order overturning the government decision. True, for many local levels the only source of revenue is the taxes levied on the sale of river materials. But this should not be happening at the expense of the environment.
A version of this article appears in the print on July 14, 2022, of The Himalayan Times.
