December 20 : At a time when talk of liquidity crunch is doing round, various statistics show that state of liquidity has improved in the banking system.
Banks had started facing scarcity of loanable fund since the beginning of the last fiscal year. Rise in remittance inflow and return of the money to the banking channels after the festival and general have led to the increase of deposits, improving state of liquidity in the banking system.
As per the data made public by Nepal Rastra Bank on Sunday, banks and financial institutions have collected total of deposits of Rs 5254 billion. Out of it, commercial banks have accumulated deposits of Rs 4629 billion while development banks have deposits of Rs 625 billion.
The total credit flow of the banks and financial institutions as of December 18 is 4759 billion. Commercial banks’ lending stands at Rs 4213 billion while the lending of development banks and finance companies stands at Rs 546 billion.
According to Nepal Rastra Bank, Credit Deposit Ratio (CD Ratio) of banks and financial institutions stands at 85.86 per cent
Banks can provide loan up to 90 per cent of CD ratio. Given this provision, banks and financial institutions have capacity to increase credit flow of more than Rs 226 billion, said former banker Parsuram Kunwar Kshetri. “Even if a large sum of liquidity goes to the government coffers by the end of current month, banking system will still have one liquidity of one trillion,” Kshetri claimed.
When asked banks would face liquidity crunch at the end of second quarters of the current fiscal due to tax, internal loan collection by the government and reduction of local levels’ budget from deposits, Ksherti said, “After reducing all of these, banking system will have one trillion left. They will have the capacity to flow credit of Rs 1000 billion.”
Since the deposit is increasing in the banking system, banks will have to slash interest rates from next month if conditions remain unchanged, according to Kshetri.
Banks will lose deposits of Rs 31 billion after the end of the second quarters as they can calculate only 50 per cent money of the local levels as deposits. They are calculating 80 per cent of the local levels’ budget as deposits right now. Around Rs 45 billion will go into the government coffers as tax.
A report published by Nepal Rastra Bank has shown that financial indicators such as remittance inflow, foreign currency reserve and balance of payment have improved. Remittance inflow increased by 20.4 per cent between mid-October to mid-November. The country received more than Rs 96 billion remittance during the same period.
Data published by Nepal Bankers’ Association show that commercial banks’ deposit increased by 57.22 billion between mid-November and mid-December. Deposits grew by Rs 22 billion in the last week of Mangshir.
Despite rise in deposits, credit flow of the banks is sluggish. Commercial banks provided lending of just Rs 2 billion in the month of Mangshir. Up to the end of Mangshir, lending has reached 4224 billion. Due to soaring interest rates, demand for credit has slumped and banks have failed to expand lending, said Kshetri.
Nepal Rastra Bank’s Governor Maha Prasad Adhikari has been saying that financial indicators have improved and liquidity situation is easing. He, however, has cautioned that banks might experience a liquidity crunch at the end of second quarters.
Nepal Bankers’ Association Anil Kumar Upadhyay said that state of liquidity was easing due to rise in remittance inflow and other reasons. “State of CD Ratio has become comfortable. But, liquidity is not going to be easily available. If the deposits continue to rise in the same manner, bank interests will decrease from next month,” Upadhaya added.
Banks have kept the interest rates stable for the current month.
Rastra Bank’s Executive Director Dr Prakash Kumar Shrestha said that state of liquidity is easing but banks are not able to provide credit easily. “There is no space to provide big loan,” Shrestha stated.