In the last three months, the bank has collected 140 billion rupees in deposits and 30 billion rupees in loans.
What you should know
With only two days left until the end of the first quarter of the current fiscal year, banks and financial institutions have accumulated around 1.15 trillion rupees in lending capacity (excess liquidity). With the start of the new fiscal year, the amount of lending capacity in banks and financial institutions had started to increase.
With the expansionary budget and monetary policy for the current fiscal year, it was expected that credit flow would increase and the loanable amount accumulated in banks would decrease. In the initial months, signs of an increase in loan demand were also seen.
The opening of letters of credit (LC) in banks had also increased. However, banks say that credit expansion has almost come to a standstill due to the uncomfortable situation created after the protests on 23 and 24 Bhadra. This is why deposits in banks and financial institutions are continuously increasing, while the amount available for lending is also accumulating.
As of last week (Asoj 26), the total deposits in banks and financial institutions are 7.444 trillion rupees. The credit-deposit ratio (CD ratio) of banks and financial institutions during the same period is 74.59 percent. As per the instructions of the National Bank, banks and financial institutions can lend up to a maximum of 90 percent of the total deposits. The total credit flow of banks and financial institutions during the same period is 5.621 trillion rupees. Based on the above data, banks and financial institutions have excess liquidity of Rs 1.161 trillion as of mid-Ashar.
However, banks and financial institutions must keep 20 percent of their total deposits in cash. When all banks maintain liquidity at a rate of 20 percent, the amount spent is equal to about one percent of the CD ratio. Therefore, although banks and financial institutions are allowed to maintain a CD ratio of up to 90 percent of deposits, they are allowed to go up to 89 percent because they have to maintain 20 percent liquidity.
Even based on these facts, experts say that banks and financial institutions had an amount of around Rs 1.086 trillion in the financial system that could be lent by them as of mid-Ashar. In Shrawan last year, banks and financial institutions had an amount of Rs 1.12 trillion and in Bhadra last year, Rs 1.046 trillion. By the third week of Ashoj, this amount had increased further to Rs 1.166 trillion.
The average loanable amount for the 11 months of the last fiscal year was Rs 600 billion, but it suddenly increased to Rs 1050 billion in mid-Ashad. The increase in loanable amount has not stopped in the following months. In the first three months of the current fiscal year (from Shrawan to Asoj 26), deposits of Rs 140 billion have been added to banks and financial institutions.
Only Rs 30 billion have been loaned during the same period. Compared to the same period of the last fiscal year, deposits have increased significantly, while loan flow has decreased by more than half. In the first three months of the last fiscal year (from Shrawan to Asoj 28), deposits increased by Rs 129 billion, while loan flow was Rs 97 billion.
Financial sector experts say that the government should now focus on expanding investment as the external sector of the economy is strong and interest rates have come down significantly. While there are signs of improvement in the economy, financial sector expert Parashuram Chhetri Kunwar says that the demand for loans has not increased due to the uncomfortable situation created after the Gen-G protests. ‘At this time, the confidence of the entire society has declined. The confidence of the private sector and the police seems to have decreased the most,' he said, 'in such a situation, it is not expected that credit and investment will increase.'
The main role in increasing credit demand is played by fiscal policy (government), while monetary policy will facilitate it. Therefore, in the current situation, an official of the Nepal Rastra Bank said that the government should initially increase spending to increase credit expansion. According to him, even if the government has to borrow, it should increase investment in large infrastructure, national pride projects that will yield quick returns. He said that many economic indicators are currently supporting the government to expand investment.
After the continuous increase in liquidity in the market, the Nepal Rastra Bank is also regularly withdrawing money from the market. In the same vein, the Nepal Rastra Bank withdrew Rs 50 billion from the market on Sunday. On the first day of the opening of the office after Dashain, it withdrew Rs 90 billion and on Wednesday, it withdrew Rs 20 billion from the market. Of the amount withdrawn in this way, the Nepal Rastra Bank has Rs 765 billion as of Sunday. Since the aforementioned amount was withdrawn by the Nepal Rastra Bank for a short period, the amount will come to the market after the maturity period. This seems to create even more liquidity in the market.
The National Bank has set a target of expanding credit by 12.5 percent in the last fiscal year. To meet this target, banks and financial institutions had to expand credit by 682 billion rupees. But the credit disbursed by banks till last Ashar was 251 billion rupees less than the target.
The National Bank has set a target of expanding credit by 12 percent in the current fiscal year. The National Bank, which had set a target of 11.5 percent credit expansion in the fiscal year 2080/81, had set a target of 12.5 percent for last year. Despite the fact that the credit expansion target was not met in previous years, a target of 12 percent has been set again this year.
Santosh Koirala, President of the Nepal Bankers Association, said that the credit flow of banks and financial institutions is currently at a standstill. "Not only is there no credit flow, but there is also no principal and interest payment," he said. "Promissory notes have not been opened, interest has not been paid, there is no loan demand, the entire banking sector is almost at a standstill." He said that the National Bank has been requested to extend the deadline by at least one month to see if the borrowers have not been able to pay the interest. Interest rates have fallen to their lowest level in 50 months.
