June 27: Banks and financial institutions (BFIs) are under pressure due to the credit-deposit (CD) ratio prescribed by Nepal Rastra Bank (NRB) through the monetary policy of the current fiscal year. The pressure on banks has increased as the liquidity crisis persists while the deadline for implementing the CD ratio is almost over.
According to NRB, the average CD ratio of commercial banks have come within the prescribed limit since June 5. The average CD ratio of banks stood at 89.51 percent last Tuesday.
However, since the concession given by NRB for calculating the CD ratio is ending in mid-July, banks will face a troublesome situation after that. Until mid-July, banks will be able to calculate the amount of debentures and refinancing amounts as deposits in the CD ratio. Similarly, the government also facilitated banks to calculate 80 percent of the amount in the accounts of the local levels as deposits. As all these facilities are only available till mid-July, more pressure will be added on the banks, which are unable to disburse loans due to the CD ratio.
Chairman of the Nepal Bankers Association Anil Kumar Upadhyaya indicated that more time and facilitation is needed for the implementation of the CD ratio.
“Banks maintain the CD ratio as per the timeline given by NRB, then a new monetary policy is introduced. Discussions are needed on how to proceed ahead,” said Upadhyay. He declined to comment on the policies required for the CD ratio.
Stock market investors are demanding the removal of the limit on loan for share investment and the withdrawal of the CD ratio. Similarly, the traders and entrepreneurs have also submitted similar suggestions for monetary policy.
The Nepal Chamber of Commerce has requested to increase the CCD ratio to 85 percent or the existing 90 percent CD ratio to 95 percent. Similarly, the Chamber of Industries Morang suggested implementing the provision of not calculating CD for the credit of productive sector. However, so far the NRB leadership has not indicated towards any change in the policy of implementing CD ratio. On the contrary, it indicated that the ongoing trend will be implemented strictly.
NRB said that it will tighten the ongoing procedure even more after mid-July, after holding separate discussions with the directors and chief executive officers of the commercial banks.
Assistant Spokesperson of NRB, Narayan Prasad Pokhrel said that the CD ratio should be brought in limits within the stipulated time till the next policy. Although the average CD ratio of banks is already maintained, not everyone has been able to bring it within the limits. According to NRB, the CD ratio of 15 out of 27 commercial banks is still more than 90 percent. NRB has already asked those banks for clarification.
Banks are emphasizing on loan recovery to maintain the CD ratio. In mid-August of last year, NRB removed the requirement of banks and financial institutions to maintain capital, credit and deposit ratio (CCD ratio) at 85 percent and implemented the provision of maintaining 90 percent CD ratio. The banks with higher CD ratio were given time till mid-July, 2022 to bring them within the limit. NRB had become flexible in its mid-term monetary policy review as banks were unable to invest due to this arrangement.
NRB issued a directive on December 16, giving deadline till mid-July 2022 to maintain the CD ratio. The NRB also directed to implement the necessary action plan to maintain the CD ratio within the prescribed limits. There is a provision to monitor and take action against the banks that fail to maintain the CD ratio as specified in the directive.