Development banks, fin cos attracting more deposits
KATHMANDU, MAR 17 -
With commercial banks offering lower interest rate on deposits, development banks and finance companies are expriencing healthy growth in their deposits due to relatively higher interest rate.
Nepal Rastra Bank (NRB) data of the first seven months of the current fiscal year suggests that the deposits in commercial banks grew by 3.8 percent, while that of development banks and finance companies record growth of 6.9 percent and 5.7 percent respectively.
This is quite contrary to the trend observed during the same period in the last fiscal when deposits in the banks increased by 12 percent, with the development banks and finance companies witnessing rise in deposits by 12.7 percent and 1.4 percent respectively.
The commercial banks collected an additional deposit of Rs 32.8 billion during the first seven months of this fiscal, down from Rs 81.44 billion collected during the same period in the last fiscal, according to NRB report.
Additional deposits collected by the development banks also declined to Rs 8.41 billion from Rs 11.56 billion collected during the same period last year. However, the decline is not as excessive as that of the commercial banks .
Deposits collected by the finance companies stood at Rs 4.27 billion, up from Rs1.13 billion in the review period last year.
Bankers admitted that the commercial banks ’ decision to lower interest rate since the last fiscal when they had high excess liquidity contributed to the shift of deposits to B and C financial institutions.
“Unlike last year finance companies have gained from lower interest offered by commercial banks as the formers are not in any problem in terms of liquidity,” said Rajendra Man Shakya, president of the Finance Companies’ Association of Nepal. “Finance companies are also not facing crisis of confidence of customers due to trouble in some of the companies as much as they did earlier.”
He said heavy decline in interest rate by the commercial banks contributed to people taking their deposits away to finance companies that maintained relatively higher interest rate.
Most of the finance companies are still maintaining interest rate on fixed deposits around 12 percent, while the commercial banks have increased theirs to eight percent from the previous range of six percent. Interest rate on saving deposits is, however, much lower in the commercial banks . Himalayan Bank CEO Ashoke Rana also said that deposits moving to B and C class financial institutions could be due to difference in interest rate.
Bankers, however, are of the view that lowering and increasing the interest rate is usually made based on market condition. “When there is enough liquidity option for investment is low, there is no point of giving high interest rate to the depositors,” said Upendra Poudel, CEO of NMB Bank.
However, the bankers are facing accusations that they are only focused on earning profits by offering lower interest rate on deposits, while charging much higher rates on lendings. “As banking business is highly risky, seeking profit as per the risks involved is all but natural,” argued Poudel.
Due to sluggish growth in deposits compared to high growth in lending, the credit-to-deposit ratio of banks have reached close to 80 percent. This means they will be in no position to lend further unless they increase deposits. Some banks are also facing liquidity tightness although system as a whole does still have excess liquidity.
Source: The Kathmandu Post
