May 10: The credit-deposit (CD) ratio of 18 out of the 27 commercial banks in operation in Nepal is above 90 percent. This is more than the limit set by the Nepal Rastra Bank (NRB) which the banks have to comply within mid-July. The CD ratio of the remaining nine banks is less than 90 percent. 

Bankers say the CD ratio has risen to more than 90 percent as deposits could not grow. 

Through the monetary policy, NRB has implemented the provision of maintaining CD ratio by removing the provision of capital, loan and deposit (CCD) ratio in banks and financial institutions. As per the announcement of the monetary policy for the current fiscal year (FY), the central bank had issued a directive in August asking the banks and financial institutions to maintain the CD ratio up to 90 percent. Banks with higher than the ratio specified in the directive were given time till mid-July 2022 to bring the ratio within the limit. 

Until mid-July, banks will be able to calculate the amount of debentures and refinancing in the CD ratio as deposits. Similarly, the central bank has allowed the banks to calculate 80 percent of the amount at the local level as deposits. The bankers say that since the facility will end in mid-July, there will be more pressure on the CD ratio. 

Sunil KC, vice-president of  Nepal Bankers' Association and chief executive officer of NMB Bank, said that it would be difficult to bring the CD ratio of banks and financial institutions within the limit in this month as the average CD ratio of BFIs is 91 percent. 

“While the credit flow has increased by 12 percent in the current FY, the deposit collection has increased by only 4 percent,” he said, adding, “It is difficult to maintain the prescribed CD ratio as there is no sign of significant growth.” 

The Bankers' Association had urged the NRB to facilitate the implementation of CD ratio in the mid-term assessment of monetary policy. As per the demand of the association, NRB had extended the time till mid-July. 

The banker says that more time is needed as it is difficult to bring the CD ratio within the stipulated limit even in July. According to the association, the CD ratio of only nine banks was within the limit as of April. The CD ratio is more than 91 percent of a dozen banks. The remaining half a dozen have the ratio of 90 percent in average. 

On the other hand, NRB officials say that the banks should continue to operate as per the existing system until further notice. “The banks and financial institutions are given time till mid-July to bring the CD ratio within the stipulated limit,” said Narayan Prasad Pokharel, deputy spokesperson of NRB, adding, “Within that time, banks should bring the ratio within prescribed limits even by managing the deposit and credit investment.” 

He said that as the action plan to bring the CD ratio within the prescribed limits has been approved by the Board of Directors and presented to the central bank, the banks should work accordingly.  

Recently, banks have not been able to disburse credit due to high CD ratio. The CD ratio of Standard Chartered, Prabhu Bank, NIC Asia, Rastriya Banijya Bank, Laxmi and NMB Bank is below 90 percent. Similarly, the CD ratio of Sanima, Machhapuchhre and NCC Bank is also below the limit.