Gov urges banks to invest in productive sector, slash rates
KATHMANDU, DEC 19 -
Governor Yub Raj Khatiwada has urged commercial banks to invest in the productive sector and slash interest rates on such loans.
The governor on Sunday called chief executive officers (CEOs) of all commercial banks at the Nepal Rastra Bank (NRB) to discuss issues such as excess liquidity in banks due to increasing deposits and suppressed credit, and the realty sector’s woes that are still far from over.
Asking bankers to prioritise lending in sectors such as hydropower and manufacturing that generate sustainable income, he suggested them to lend in these areas at relatively lower rates. “The governor suggested us to lend in long-term projects at lower rates,” said a banker who attended the meeting. “We told him that we are ready to invest in new projects instead of old.”
During the meeting, the governor expressed concern about high interest rates despite the phenomenal deposit growth, and low credit flow in recent days. Commercial banks saw their total deposits grow by Rs 56 billion in the first five months of the current fiscal year compared to Rs 21 billion in the same period last year.
However, bankers say the demand for credit has gone down due to lack of confidence among investors coupled with a deteriorating business environment. “Banks’ job is to collect deposits and lend. And we are always ready to do that,” said another banker. “But without demand for loans, how can we lend?”
Some bankers say it is not the lending rate that is suppressing credit demand, but lack of confidence among investors due to poor business environment, acute power shortage and labour disputes, among others. “Also, we are not in a position to slash interest rates immediately,” said a banker. “Our cost of fund is still pretty high, with most of our deposits being collected in the form of fixed deposits with one-year maturity period.”
The central bank pledged to help banks for the safe-landing of realty loans. Khatiwada promised to offer any help to solve the problem without encroaching NRB provisions and corporate governance.
Source: Kantipur
