Lumbini is second only to Bagmati in deposits, and Koshi in loans. Although the state had the objective of decentralizing financial services after the country went federal, it was not possible to work accordingly.
What you should know
In terms of fiscal federalism, a government study has shown that most of the country's total deposits and loans are concentrated in Bagmati Province. The Economic Activity Study Report for the fiscal year 2081/82 conducted by the Nepal Rastra Bank showed that 65.8 percent of total deposits and 59.5 percent of credit flow are in Bagmati.
This confirms that even though the state's objective is to decentralize financial services as the country transitions to federalism, it has not been implemented accordingly.
According to the report, the total deposits collected by banks and financial institutions from Bagmati as of last Ashar are Rs 4797.59 billion. This is an increase of 10.8 percent compared to the previous year. In the same period of the previous year, deposit collection in this province had increased by 11.9 percent.
As of last Ashar, banks and financial institutions have disbursed loans worth Rs 3323.31 billion in Bagmati alone. This amount has increased by 11.3 percent compared to the same period of the previous year. In the previous year, such loans had increased by 8.5 percent.
From a regional perspective, Lumbini has the most deposits after Bagmati, with 9.05 percent. In addition, Gandaki has 8.39 percent of total deposits, Koshi 7.58 percent, Madhesh 5.59 percent, Sudurpaschim 2.38 percent and Kanali 1.25 percent. In terms of loan flow, Koshi is behind Bagmati.
This province accounts for about 11 percent of the total loan. Lumbini is the next largest credit user. Its share is 10.33 percent of the total loan. In addition, Madhesh's share is 8.88 percent, Gandaki's 6.39 percent, Sudurpaschim's 2.82 percent, and Karnali's 1.11 percent.
Economist and former executive director of the Nepal Rastra Bank, Nar Bahadur Thapa, said that since the Kathmandu Valley, the country's political and financial capital, is located in Bagmati, this province accounts for most of the total deposits and loans. Since it is the capital, citizens from different parts of the country tend to concentrate in the Kathmandu Valley.
He said that this is why industries and businesses are also located in Bagmati. Thapa admitted that even after almost a decade of federalization, financial services have not been decentralized.
'Currently, the central offices of most banks and financial institutions are concentrated in Kathmandu. Kathmandu is also the political and financial capital,' he said, 'In order to decentralize financial services, licenses should be given to open banks and financial institutions with jurisdiction at the provincial and local levels.'
Recalling that in many countries including India and Pakistan, the political center (capital) and the central bank (financial capital) are in different cities, he added, 'It seems that a lot of work needs to be done to effectively implement fiscal federalism in Nepal.'
Bagmati is also at the forefront in terms of branch network. As of Asad 2082, 5,099 branches of commercial banks, 1,132 of development banks, 291 of finance companies, 5,04 of microfinance financial institutions, and 1 of Infrastructure Development Bank are in operation. Of the total branches of banks and financial institutions, Bagmati has the highest number of branches, 3,038, and Karnali has the lowest number of branches, 479.
Bankers say that even though branches of banks and financial institutions are established across the country, since major transactions are done from the central office, loans flowing from other provinces are also in the center. According to them, most of the large loans and deposits are concentrated in the Kathmandu Valley, which is also where most of the financial transactions are.
According to the National Bank, as of Asad 2082, the loans disbursed by banks and financial institutions to the service sector have reached 2184 billion 400 million. This is an increase of 6.6 percent compared to mid-Asad 2081. During that period, the loans disbursed to the service sector accounted for 39.1 percent of the total loans.
The report states that the largest amount of loans disbursed to the service sector was in the wholesale and retail subsector (47.3 percent), followed by the real estate subsector (12.2 percent), the tourism subsector (11.8 percent), the finance, insurance and real estate subsector (11.3 percent), the education subsector (6.6 percent), the transportation, storage and communication subsector (3.7 percent), the other services subsector (3.7 percent), and the health and other social work subsector (3.3 percent).
Currently, a total of 7641 billion rupees have been collected in deposits in banks and financial institutions. This is the amount deposited by individuals and institutions in banks and financial institutions. Of the total deposits, 90 percent is in commercial banks and the remaining 10 percent is in development banks and finance companies.
This is about 125 percent of the gross domestic product (GDP). Similarly, as of last Monday, banks and financial institutions have disbursed loans worth Rs 5,712 billion. This is 93.5 percent of the total GDP. However, the economy has not improved as expected in recent years. Economic activity has not expanded.
As of last Monday (21 Pus), the credit-deposit ratio (CD ratio) of banks and financial institutions is 73.93 percent. As per the instructions of the Nepal Rastra Bank, banks and financial institutions are allowed to lend up to a maximum of 90 percent of total deposits. The total credit flow of banks and financial institutions during the same period is Rs 5,712 billion. Based on this, banks and financial institutions currently have investable funds (excess liquidity) of Rs 1,164 billion.
Banks and financial institutions should keep 20 percent of their total deposits in cash in banks. All banks spend about one percent of their CD ratio when maintaining liquidity at 20 percent.
Although banks and financial institutions are allowed to maintain a CD ratio of up to 90 percent of their deposits, they are allowed to go up to 89 percent (give loans) because they have to maintain 20 percent liquidity. Even based on these facts, the amount that banks and financial institutions can lend as much as Rs 1088 billion as of 21 Poush is confirmed by the data of the Nepal Rastra Bank in the financial system.
