CD Ratio Dips Below 80% as Investable Funds Surge; Loans Lag Behind Deposits in Kartik

The average Credit-Deposit (CD) ratio of banks in Nepal has fallen below 80%, reaching 79.89% by the end of Mangsir, as reported by the Nepal Rastra Bank (NRB). On the same date, deposits in banks and financial institutions soared by 6 arba rupees, totaling 60.16 kharba rupees. However, loan investments only increased by one arba rupees on that day.

The sluggish growth in loans compared to the robust deposit collection has led to a significant accumulation of investable funds in banks, surpassing 6 arba rupees, according to data until Mangsir 30th. While banks are permitted to maintain a CD ratio of up to 90%, the current ratio falls short, resulting in an excess of investable funds.

The inability to bring the inter-bank interest rate within the desired limit poses a challenge for the Nepal Rastra Bank. Despite continuous efforts and liquidity-seeking measures, the central bank has struggled to push the interbank interest rate above 3%, remaining at 2.72% as of the end of Mangsir.

The Rastra Bank aims to maintain the interbank interest rate within the corridor of 3 to 7 percent but has faced difficulties achieving this target amid a surplus of liquidity. Despite withdrawing over 60 arba rupees in liquidity from banks, the interbank interest rate remains below the desired level.

In the month of Kartik alone, more than 1 kharba rupees were added to deposits in banks and financial institutions, reaching a total of 60.16 arba rupees by the end of the month. In contrast, loan investments during Kartik were minimal, with only 14 arba rupees being invested. The disparity between deposit growth and loan expansion has led to an increase in investable funds, prompting banks to lower interest rates.

Since the month of Mangsir, banks have, on average, reduced interest rates by 0.63% points compared to Kartik, resulting in cheaper loan interest rates for borrowers.