Despite a significant decline in credit flow in the last five months, credit flowing to the stock market (of a margin nature) has increased by three percent. As of last Asoj, banks and financial institutions have extended an additional Rs 4.2879 billion in equity loans.
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In the last five months, banks and financial institutions collected around Rs 2.5 trillion in deposits and disbursed only Rs 75 billion in loans. Compared to the same period of the last fiscal year, the loan flow has decreased by around Rs 79 billion. While in the last fiscal year from Shrawan to Mangsir, deposit collection was Rs 146 billion and loan flow was Rs 154 billion.
Despite a significant decline in credit flow in the last five months, the credit flow (of a margin nature) in the stock market has increased by three percent. Until last Asoj, banks and financial institutions have extended an additional Rs 4.28 billion 7.9 million in share loans.
However, the share loans added in the last three months are less than the share loans flowed in the three months of last year. Banks and financial institutions had extended an additional Rs 15.73 billion in loans in the first three months of the last fiscal year. Thus, there is no demand for loans in banks and financial institutions this year due to various reasons. This is why banks and financial institutions have accumulated excess liquidity (amount available for lending), while loan demand has not been able to increase.
Compared to last Asaj, overdraft, import (trust receipt) loans, commercial real estate loans, and loans to the underprivileged groups have decreased until Asoj. However, share loans have increased by 3 percent and residential real estate purchase loans by 5.3 percent. However, neither significant improvement is seen in the real estate sector nor has the positive impact of loan growth been felt in the stock market.
There is no compulsion to invest all loans in the stock market in the stock market, so there is no positive impact on the NEPSE, says Dharmaraj Sapkota, former president of the Stock Brokers Association. ‘It seems that share loans have increased in recent months, so the demand for shares should increase in the market, but the market has not increased as expected,’ he said, ‘This has given rise to suspicion that not all loans in the share collateral have come to the capital market. In the past, loans in other categories, including overdrafts, also used to come to the capital market. That situation is not seen now.’
As per the instructions of the Nepal Rastra Bank, margin loans are loans disbursed by banks and financial institutions using shares as collateral. Since there is no compulsion to invest that loan only in the stock market, stock investors say that it is not possible to question why that loan was invested in other sectors. According to the data of the Nepal Rastra Bank, share loans between 25 and 50 lakh rupees have increased by 1.5 percent and loans below 25 lakh rupees have increased by 3.1 percent. During the same period, loans of more than Rs 10 million have increased by 2.1 percent and loans of Rs 5 million to Rs 10 million have increased by 10.5 percent.
Nepal Bankers Association President Santosh Koirala said that the demand for loans in banks and financial institutions has not improved. “The situation is very disappointing, although some loans have increased in share collateral, the overall loan has not increased,” he said. Last October, the National Bank removed the maximum limit of Rs 250 million on individual share loans. Before that, the maximum single customer loan limit for margin loans provided against share collateral by any one or all banks and financial institutions was a total of Rs 250 million.
The committee formed by the government to make suggestions for the capital market had recommended removing the limit. The Ministry of Finance had issued a circular by the National Bank in October to implement the suggested report. In accordance with the same directive, the National Bank has removed the share loan limit. It has also adopted a flexible policy in other arrangements related to share trading.
Now, banks and financial institutions will be able to invest in shares for up to 6 months. Earlier, there was a provision that allowed investment in shares and debentures of a corporate body that had been listed on the Nepal Securities Exchange (NEPSE) by selling shares to the general public for a period of more than one year. That period of one year has been reduced to 6 months.
The Rastra Bank has also abolished the provision that only up to 20 percent of the primary capital of the investments purchased in this way can be sold in a fiscal year. The Rastra Bank had made the aforementioned provision based on the conclusion that the stock market could not grow due to these provisions. However, the positive impact of these policies has not been seen in the stock market.
