Commercial banks lending wings clipped

KATHMANDU, NOV 11: 

The commercial banks are apprehensive about floating new loans on the wake of compulsion to maintain higher Credit to Deposit Ratio (CD Ratio) despite the excess liquidity in the system.

The liquidity starved financial sector is now overstuffed due to rising amount of bank deposits. “The banks need to maintain 80 per cent CD Ratio from the current 85 per cent by the end of second quarter of current fiscal year that will contract the lending capacity of the banks which is one of the reason for banks not being overzealous in financing new loans,” said CEO of Mega Bank Anil Shah.

The commercial banks at present have deposits worth a little over Rs 710 billion, of which its 85 per cent, that is, about Rs 600 billion are loanable. However, with 85 per cent CD ratio banks can lend up to Rs only 570 billion which is still about Rs 40 billion more than total amount lent by the commercial banks which stand around Rs 530 billion lately.

The banks will still have about Rs 1.5 billion excess lending capacity on average despite provisioning for new CD ratio. “Moreover, there are also no new loans being floated because of the absence of projects worth financing as viable industries are coming up for funds,” pointed out Shah. 

“Maintaining new CD ratio might be a reason but the absence of proper investment environment is the reason why there is low demand for funds from banks by the private sector,” senior deputy governor of Nepal Rastra Bank (NRB) Gopal Kafle also pointed out.

“At present there is about Rs 30-35 billion excess liquidity with the commercial banks as a whole,” he said, adding that they can expect to see more loans being lent after November as most of the projects starts to take off around the period.

The banks’ comfortable liquidity situation was reflected in the inter bank lending rate that had started to abate since September due to easing liquidity situation from 12 per cent just few months ago. However, inter-bank lending rate among development banks and finance companies are still around eight per cent, according to Kafle.

But bankers opined that the inter-bank lending portfolio has now died with the new CD Ratio rule.

The only downside in the process is depositors facing lower interest rate as banks have enough deposits, but then again lending interest will also be cheaper propelling more investment. 

“Consumers will once again get less for their deposited money, thus, the central bank need to come up with a plan to absorb the liquidity to stabilise interest rate,” expressed Shah.

However, the central bank in order to manage excess liquidity will be issuing government securities instead of opting for easy route of reverse repo. “NRB will issue bonds, treasury bills and development bonds, worth Rs 14 billion within a month.”

Unclaimed dividends

The central bank has directed financial institutions to deposit unclaimed dividends in a separate account. The banks and financial institutions also need to publish the list of shareholders and the beneficiary of the unclaimed dividends since last five consecutive years in a national daily after end of a fiscal year. The NRB has also asked the banks and financial institutions to publish details of the unused deposit accounts in national dailies after the end of each fiscal year.

Source: THT