Banks' lending starts to pick up after months of stagnation

With economic activities coming back on track, lending of bank and financial institutions (BFIs) is also increasing gradually. Commercial banks extended credit of a total of Rs 34 billion in the last month after India lifted economic blockade in the second week of February. Data compiled by Nepal Bankers Association (NBA) shows 29 commercial banks have extended a total of Rs 1,218 billion as of last Thursday. In the earlier month (January 1 to January 29), lending of BFIs increased by Rs 27 billion which many experts described as 'inorganic growth' as the banks largely tapped the relaxation of Nepal Rastra Bank (NRB) to capitalize a huge interest amount from the borrowers hit by the recent turmoil. The lending of BFIs had remained almost stagnant in the previous months due to the devastating earthquakes, Tarai turmoil and ensuing economic blockade as investors and private sector were scared to borrow amid worsening economic and political situation of the country. While BFIs were struggling to increase their loans, the earthquake and Tarai turmoil had hit the capacity of borrowers to repay their regular installment of principal and interest. NRB had extended the period of repayment of installation as well as offered number of relaxation measures to borrowers battered by the 'unfavorable circumstances'. Among other relaxations, the central bank had said that the BFIs can capitalize interest and recognize it under interest income while restructuring and rescheduling loans of borrowers affected by 'unfavorable circumstances'. For example, if a bank had floated Rs 100 to a borrower and the borrower is required to pay Rs 5 as interest in the second quarter, the bank will now recognize Rs 5 as loan as well as income interest. However, such interest income should be kept in a separate fund until the loans are repaid. Bankers say that the demand for loans is increasing in recent weeks with businesses getting back into normalcy.  The rise in demands, however, has not impacted interest rates of BFIs. The 91-day Treasury Bill rate fell further to 1.0652 percent on March 29 from 1.0763 on March 23. The deposit rate offered by BFIs has not increased much, either. "It would be too early to say that lending is in an increasing trend just by judging the figures of only few weeks. However, demand for loans has been picking up in recent weeks," said a banker. "The interest rates cannot go down immediately as the banking system is still awash with excess liquidity." While loan flow rose by Rs 34 billion in the last one month, deposit mobilization grew by only Rs 13 billion to Rs 1,590 billion. In the earlier month (January 1 to January 29), they had collected a total of Rs 35 billion. Source: republica