Institutional depositors eschew B, C class FIs
KATHMANDU, SEP 09 -
Institutional depositors have adopted a cautious approach in depositing money in B and C class financial institutions.
The Citizen Investment Trust (CIT) has not made any new deposits in development banks and finance companies for the last one and half months, citing risks, after a number of such financial institutions landed in trouble. Another key institutional depositor Rastriya Beema Sansthan (RBS) has also been watchful.
In the last three years, several B and C class financial institutions either landed in serious trouble or were liquidated. This has prompted institutional depositors to deposit their funds at safer places even if they have to compromise with interest rate.
“We have not put new funds in development banks and finance companies for the last one year as per our board decision,” said Rishiram Gautam, executive director of CIT. “We have shifted deposits to commercial banks.”
According to Gautam, CIT currently has Rs 1.5 billion deposited in development banks and finance companies — just 10 percent of its total deposits (put around Rs 16 billion) in banks and financial institutions. Earlier, CIT had adopted a policy of putting 60 percent deposits in commercial banks and 20 percent each in development banks and finance companies.
RBS is also following suit. “We have adopted a policy of putting deposits only in fully secure financial institutions,” said Harihar Ghimire, chief manager at RBS. “Our priority is to put money in financial institutions that meet our criteria regarding financial health and government bonds.”
The largest institutional depositor, Employee Provident Fund, however, puts deposits only in commercial banks as per the EPF Act.
With institutional depositors moving away, finance companies, particularly, are finding it hard to lure depositors. Deposits in finance companies have declined by 7.5 percent last fiscal year, while commercial banks and development banks saw their deposits increase by 26.7 and 34 percent, respectively, according to the Nepal Rastra Bank’s (NRB) annual macro-economic report.
Although savings and demand deposits in finance companies grew, fixed and call deposits plunged drastically, dragging down the overall deposits figure. Institutional depositors usually put their money in fixed deposit accounts.
According to the NRB report, fixed deposits in finance companies plunged to Rs 36 billion last fiscal year from Rs 45 billion in the previous year. Call deposits declined to Rs 645 million from Rs 2 billion.
“The crisis of confidence in finance companies, as some of them landed in trouble last year, resulted in reduced institutional deposits,” said Rajendra Man Shakya, president of the Nepal Finance Companies’ Association. “On the other hand, merger of about a dozen finance companies also reduced deposits in finance companies as a whole.”
Shakya said although the crisis of confidence in finance companies was a big challenge, reduced deposits have been better for them at a time when the demand for credit is low.
Source: The Kathmandu Post
