March 1: Commercial banks have continued to increase credit flow as compared to deposit collection. Because of the lack of deposit collection, banks are withdrawing loans from Nepal Rastra Bank via monetary instruments including the Standing Liquidity Facility (SLF) and are mobilizing loans in the market.

According to data unveiled by the Nepal Bankers' Association on Monday, commercial banks have been intensifying credit flow since mid-February. The credit flow of banks was Rs 12 billion in between mid-January to mid-February but the credit flow in the last two weeks of February alone is Rs 10 billion. Banks disbursed Rs 4 billion in the third week and Rs 6 billion in the fourth week of February. Meanwhile, deposits have increased by only Rs 2 billion during this period.

Banks and financial institutions had hiked interest rates on deposits by 10 percent in mid-February, citing liquidity crunch. Commercial banks have raised the maximum interest rate on deposits to 11.3 percent.

Even with an increase in interest rates, bank deposits have not increased. So, the banks have been extending loans via monetary instruments such as Standing Liquidity Facility (SLF), repo, and overnight repo and direct purchase method.

The banks have utilized such monetary instruments 2,481 times in the current fiscal year to mobilize Rs 4591 billion with the help of the central bank as of February 27. Out of this amount, Rs 154.66 billion is in banks and financial institutions.

 NRB's Executive Director, Prakash Kumar Shrestha said that this is the highest amount of liquidity consumption by the banks till date. “Banks can enjoy liquidity flow facility to manage the liquidity at the time of crises,” he said adding, “But it is not appropriate and shows the weakness of banks to depend completely on NRB.”

Chairman of Nepal Bankers Association, Anil Kumar Upadhyaya says that the banks have not made any new investments. “Depending on the condition of the debtor, some investments may have been made in the loans already approved. But banks are not in a position to extend new loans.” He claimed that the money received from the facility including SLF was the bank’s own money and they have been using it accordingly.

As of mid-February this year, bank deposits have increased by Rs 1.1 billion and credit flow has increased to Rs 434 billion. The credit flow is high and most of the credit goes to unproductive sectors including imports causing further lack of liquidity.