October 15: The flow of loans from banks and financial institutions had been shrinking due to the coronavirus pandemic. However, the flow of personal and small loans has now picked up its pace. Bankers believe that the upcoming Dashain festival is the cause for the demand for new loans.

The demand for loans have always increased during Dashain due to which banks and financial institutions had to focus on their deposit collection. 

Even though the demand for loans has not been as high as it used to be in the previous years, the demand for personal and small loans has been gradually increasing because of Dashain.

According to the Nepal Bankers' Association, the commercial banks have disbursed a total of Rs 42 billion as loans from the month of Bhadra  (mid-August to mid-September) to the month of Ashoj (mid-September to mid-October). By adding the said loan, the association states that loans worth Rs 2.946 trillion has been disbursed as of October 2.

Bhuvan Kumar Dahal, the president of the association, says that the demand for consumer loans is also increasing as Dashain approaches. According to him, the demand for business loans is also increasing.

"Currently, there has been a demand for loans for operating expenses such as paying salaries to employees in the tourism sector. There has also been a demand for loans in agriculture and energy,” he said. He added that the demand for loans in the market is gradually improving.

Lately, there had been a trend of unhealthy competition between the banks to get debtors, due to the lack of demand of loans. However, bankers now acknowledge that such unhealthy competition has declined.

Due to the lack of demand in the market, there was also the talk that the banks would assign its employees the responsibility to disburse a certain amount of loan. However, bank sources say that the credit flow has improved now.

Bodhraj Devkota, deputy executive director of Citizens Bank, said that the demand for loans had started to decrease since the onset of the pandemic from in March. "However, as Dashain is nearing, collateral based personal loans like real estate loans, auto loans are increasing," he said, “SME loans are also being disbursed now. However, large projects such as cement construction are still affected.”

He said that the central bank allowing the businesses to take loans for their operating expenses is also a reason for the increase in credit flow of banks.

The situation of excess liquidity in banks is still the same despite the increase in demand of loans.

As per the data published by Nepal Rastra Bank, the banking system has excess liquidity of Rs. 160 billion as of October 13. Due to the lack of investment options, there was an excess liquidity of around Rs 200 billion in the overall banking system until the end of September. There is still excessive liquidity in the market. However, Rs 40 billion has come under control as compared to the previous time.

Nepal Rastra Bank has been issuing various instruments to control the liquidity in the market. The central bank had conducted a bidding last Monday for the sale of treasury bills worth Rs 18.25 billion to raise internal debt for the government. Dr. Gunakar Bhatta, the spokesperson of the central bank, informed that the banks and financial institutions had demanded treasury bills worth a total of Rs. 76.92 billion in that bid. The excessive liquidity in the market seems to be the reason for the high demands of the banks and financial institutions.  With the collection of deposits and the issuance of various government bonds, the central bank had brought the liquidity in the banking system under control by around Rs 40 billion.